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Employment attorneys predict uncertainty at the federal level and an uptick in state laws
Deregulation at the federal level is likely to be prevalent in 2017, but expect more protections at the state level, employment attorneys say. While storm clouds loom over the fiduciary rule, the Dodd-Frank Act, the Affordable Care Act (ACA) and the overtime rule, state laws relating to pay equity, parental leave and predictable scheduling are likely to proliferate.
The Department of Labor's (DOL's) controversial
rule to apply the fiduciary standard to those who provide investment advice to sponsors and participants in 401(k) and similar retirement plans is set to take effect in April 2017. While it is directed at financial advisors, plan sponsors may need to revise contracts and compensation agreements with their advisory firms and to review and amend plan documents, among other compliance steps.
"There are a lot of question marks about what will happen with the fiduciary rule, whether it will morph in some way or whether the new administration will be inclined to make it disappear," said Brian Netter, a partner in the Washington, D.C., office of Mayer Brown who specializes in litigating Employee Retirement Income Security Act (ERISA) issues.
Ordinarily, when a new presidential administration takes over, "recent regulations are put on ice and they aren't enforced while the new administration decides what to do," he said. But the fiduciary rule differs from many others in that "once it becomes effective, the primary enforcement mechanism is private enforcement"—such as through class-action lawsuits—"so it can't just be a matter of leaving a regulation on the books and declining to pursue violations," Netter pointed out.
Employers and their retirement plan investment committees "still need to move full speed ahead, getting themselves in a place where they understand what their vendors are doing and any new programs that their vendors are rolling out," advised Erin Sweeney, an attorney in the Washington, D.C., office of Miller & Chevalier who focuses on litigation around fiduciary obligations.
"My prediction is that the Trump administration provides for a delay of the rule," Sweeney said. "But a little bit of the wild card is that much of Wall Street [and its investment firms] have already prepared for the fiduciary rule. There are a lot of moving parts, and one of the goals of the Trump administration is not to upset Wall Street and its expectations."
CEO Pay Ratio
Starting next year, the U.S. Securities and Exchange Commission (SEC) will require public companies
to calculate how their chief executives' compensation compares with their workers' median pay and to disclose the so-called CEO pay ratio in proxy statements reporting on fiscal year 2017. The rule implements part of the Dodd-Frank Act, and many public companies are already
working through the calculations involved.
"Given that the incoming secretary of labor [Andrew Puzder] is himself a CEO whose mindset is that employers should provide benefits and salaries that are necessary to incentivize their employees, I doubt that the pay ratio is something that they will want to keep, and I would imagine that they will be looking for ways to make it disappear," Netter said.
Steve Seelig, executive compensation counsel at HR consultancy Willis Towers Watson in Arlington, Va., predicts that SEC regulations still in the proposed regulation stage, such as
pay-for-performance disclosures and new rules
mandating clawbacks of executives' incentive pay after downward financial restatements, may not be finalized. But since final SEC regulations are already in place for the CEO pay ratio, "it's more likely to be scrapped if Dodd-Frank is repealed" entirely, Seelig said.
As with other laws and regulations that the Trump administration might revisit, Sweeney said that until the new administration and its Department of Labor take definitive action, employers "have to move forward" with preparations for reporting and disclosure.
Affordable Care Act
Sweeney noted that there is not yet a plan for transitioning to a post-ACA world. "It's hard to know exactly how this will work out," she said.
Repeal of the employer coverage mandate "is what everyone is talking about" as a possible early move by the Trump administration, she added. The question facing the administration, she said, is "Can we take out the employer and individual mandates [that provide insurance companies with clients] without all the marbles falling down?"
An ACA replacement plan along the lines of
legislative proposals previously introduced by Rep. Tom Price, R-Ga., Trump's Health and Human Services secretary nominee, "may not come into effect until 2019, because the insurance market's trajectory is pretty long, requiring pricing projections and coverage estimates to be calculated far in advance," Sweeney noted. "If you spook the markets by simply saying we're going to repeal this but we'll get back to you on what this looks like, then somebody is going to have to sell the carriers on staying with the individual market until this plan is developed." (For addition thoughts on how repeal and replacement will play out, see the
SHRM Online article
Experts Predict ACA Repeal-and-Replace Prospects.)
"While you can certainly point to new health care legislation or partial repeal being introduced in early 2017, the result could be something no one has anticipated once the political process is formally played out," said Michael Weiskirch, a principal and founder at EmployeeTech, a benefits technology firm in Deerfield, Ill.
Companies should consider preparing for health care legislative changes that Trump supports, "such as repeal of the employer mandate and allowing the sale of health insurance across state lines," said Jacqueline Breslin, director of human capital at TriNet, a San Leandro, Calif.-based HR services provider. "They should be looking ahead to determine the best course of action for updating their company’s benefits in accordance with any new legislation."
Employers also should communicate with employees as they hear news of ACA changes—"for instance, letting them know how their health benefits will or will not be affected if the employer mandate is repealed," Breslin advised.
As the year begins, the future also looks uncertain for the
While the rule was
preliminarily blocked by a federal district court on Nov. 22, 2016, that injunction has been appealed to the 5th U.S. Circuit Court of Appeals. However, the Trump administration may withdraw that appeal and allow the preliminary injunction to become permanent, noted Eric Magnus, an attorney with Jackson Lewis in Atlanta. Final briefs in the case are due after Trump's inauguration on Jan. 20.
Another possibility: Congress could roll back the overtime regulations, said Alfred Robinson Jr., an attorney with Ogletree Deakins in Washington, D.C., and former acting administrator of the DOL's Wage and Hour Division. Then the new DOL might start rulemaking all over again to raise the exempt salary level from $26,660 to a lower level—not the final rule's $47,476, he noted.
"The U.S. Department of Labor considered some seven alternatives during its 2015-2016 rulemaking," Robinson said. "These options ranged from a high of $1,083 per week/$56,291 per year to a low of $561 per week/$29,178 per year. A reasonable salary level test that complements the duties tests for the executive, administrative and professional [exemptions] certainly lies between the two extremes and not close to the highest level, as the Obama administration selected in its final rule."
Brett Bartlett, an attorney with Seyfarth Shaw in Atlanta, said he was reluctant to predict the outcome of the overtime rule at this point. "The appellate judges bring their common sense to their determination of matters like this—and some have argued that it doesn't make sense that the district court would overturn what could be viewed simply as a change to a salary requirement that has been around for more than seven decades," he noted. While the requirement has been present for decades, prior to the 2016 barred increase, it was last raised in 2004 during President George W. Bush's administration.
Pay equity laws are likely to spread into more states in 2017, predicted Kris Meade, an attorney with Crowell & Moring in Washington, D.C.
In 2016, pay equity laws took effect in California, Maryland and New York, and a pay equity statute was signed into law in Massachusetts, becoming effective in 2018.
[SHRM members-only toolkit: Managing Pay Equity]
Each has unique provisions, Meade noted.
Massachusetts prohibits salary history questions. Employers may instead use market surveys, to the extent they are available for positions, noted Christine Hendrickson, an attorney with Seyfarth Shaw in Chicago. For an existing position, employers know what the market is; it's the new positions that are trickier, she observed.
In Maryland, employers now are required to inform employees about promotions in the full range of career tracks. So, they probably should post all open positions, even those that typically had not been posted, such as for vice president and above, Meade said.
In New York and Maryland, comparisons in pay are made between similar positions in the same county, Hendrickson said. But in Massachusetts and California, there are no geographical limitations on pay comparisons. Still, she said, geographic differences should be taken into account when conducting a statistical analysis between, for example, a job in Fresno, Calif., and the same one in San Francisco.
A wave of local paid-sick-leave laws swept across the nation from New Jersey to California in 2016, and some of those laws will take effect in 2017.
Paid parental leave is yet another area where employment attorneys expect to see movement at the state level in the next year.
Businesses with 50 or more employees are required to provide up to 12 weeks of unpaid leave under the Family and Medical Leave Act to eligible employees for certain qualifying events, including baby bonding. However, federal law doesn't provide for paid leave.
At the state level, only California, New Jersey and Rhode Island offer paid family leave, but the number of states offering such benefits is expected to grow.
New York passed a law that will take effect in 2018, and Washington, D.C., has approved one of the most expansive paid leave laws for private-sector employers; it includes eight weeks of paid leave for new parents after the birth or adoption of a child.
"I think we will continue to see paid-parental-leave laws introduced at the state level," said Patricia Pryor, an attorney with Jackson Lewis in Cincinnati. "There is an idea that we need to do more for our kids," she said. That's reflected in many of the new paid-sick-leave laws, which generally allow employees to take off for school events or to care for a sick child.
Additionally, activists will likely continue with state-level efforts, because they don't expect President-elect Donald Trump's administration to support such regulations.
Trump has expressed an interest in offering some sort of paid leave that would be much more restrictive than what has been introduced at the state level, Pryor noted.
The president-elect has proposed offering six weeks of partially
paid maternity leave benefits "for new mothers so that they can take time off of work after having a baby." The proposal does not include any paid leave for new fathers or for adoptive or foster parents.
Pryor noted that it would be fine to limit the benefits to new mothers for childbirth and recovery, but providing paid leave for baby bonding to mothers and not fathers could create legal issues.
The same cities and states that saw efforts to raise the minimum wage and to provide paid sick leave in recent years may also see efforts in 2017 to pass
Predictable-scheduling laws limit "just-in-time" or "on-call" scheduling practices, particularly in the retail and restaurant industries. Generally, these measures require employers to provide work schedules to employees in advance and to compensate employees for any last-minute changes.
"The predictable-scheduling movement at the state and local level has continued to gain ground since San Francisco enacted the first such measure in 2014," explained Diane Saunders, an attorney with Ogletree Deakins in Boston. "In September 2016, Seattle became the second location to enact a measure requiring retail employers to provide their employees with scheduling predictability and pay in certain circumstances when their schedules are changed," she said. "With legislation pending in several states and municipalities, and the continued support of attorneys general in several states, I expect this movement to continue to gain ground in 2017," Saunders noted.
San Francisco's predicable-scheduling law has been on the books since 2015, and Seattle's measure will take effect in July 2017. The New York City Council has also introduced similar legislation.
The general population supports predictable-scheduling measures, Pryor said. "But the idea that these laws don't harm employers is foolish," she added.
"At the end of the day, the company has to be able to operate and make a profit or it doesn't exist," Pryor noted. "And these laws make it difficult for employers to control attendance and to have someone fill in when an employee calls in sick."
Stephen Miller, CEBS, is online manager/editor, compensation & benefits, for SHRM. Lisa Nagele-Piazza, SHRM-SCP, J.D., is senior legal editor for SHRM. Allen Smith, J.D., is manager, workplace law content, for SHRM.
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