SC Lawyer, July 2009, #2. The American Reinvestment and Recovery Act of 2009 and the Resulting Effects on the Law of the Workplace.

• Author: By Daniel T. Sulton & Lucas J. Asper

South Carolina Lawyer

2009.

SC Lawyer, July 2009, #2.

The American Reinvestment and Recovery Act of 2009 and the Resulting Effects on the Law of the Workplace

South Carolina LawyerJuly 2009The American Reinvestment and Recovery Act of 2009 and the Resulting Effects on the Law of the WorkplaceBy Daniel T. Sulton & Lucas J. Asper President Barack Obama signed the American Recovery and Reinvestment Act of 2009(ARRA) into law on February 17, 2009. Pub. L. No. 111-5, 123 Stat. 115. The ARRA enacted considerable changes to multiple areas of employment and benefits law. This article will discuss several of these changes, including the following: (1) the creation of new HIPPA requirements and penalties; (2) the addition of new and expanded provisions regarding COBRA benefits; (3) the creation of additional whistleblower protections; and (4) the subsidization of and revisions to state unemployment compensation programs. This article will also briefly touch on several miscellaneous provisions that have had and will continue to have an impact on workplace laws. While this article is in no way a comprehensive analysis of all issues raised by the ARRA, it does address some of the more noteworthy portions of the Act of which practitioners should be aware.

HIPAA requirements and penalties

The ARRA includes substantial changes to the privacy and security rules of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). See id.§§ 13400-13411, 123Stat. at 258-76 (to be codified at 42 U.S.C. §§ 17921-17940). First, and perhaps most significantly, the ARRA makes existing HIPAA privacy and security rules applicable to the business associates of covered entities. Id. § 13401, 123 Stat. at 260 (to be codified at 42 U.S.C. § 17931). A HIPAA "business associate" is any person or entity who, on behalf of a covered entity, performs or helps perform a function or activity involving the use or disclosure of protected health information. 45 C.F.R. § 160.103. Currently, business associates are not directly subject to HIPAA but may be indirectly regulated by HIPAA through the business associate agreements they enter into with covered entities. However, effective 12 months after the enactment of the ARRA, the privacy and security rules under HIPAA, as well as its civil and criminal penalties, will apply to business associates in the same way they apply to covered entities. See ARRA, §§ 13400-13411, 123 Stat. at 258-76 (to be codified at 42 U.S.C. §§17921-17940).

In the event there is a breach of unsecured protected health information (PHI), the ARRA imposes certain notification requirements on covered entities and business associates. Id.§13402, 123 Stat. at 260-63 (to be codified at 42 U.S.C. § 17932). Unsecured PHI is defined as PHI that is not secured using standards that the Secretary of Health and Human Services has approved. Id. § 13402(h), 123 Stat. at 262-63. Covered entities and business associates must provide notification of a breach of unsecured PHI "without unreasonable delay" and in no case later than 60 days after discovery of the breach. Id. § 13402(d), 123 Stat. at 261. A business associate that discovers a breach must report it to the covered entity. Id.§ 13402(b), 123 Stat. at 260.

Once the covered entity discovers the breach-or if it discovers the breach itself-the covered entity must provide the notice directly to the impacted individuals or to prominent media outlets of a state or jurisdiction if 500 or more residents of that state or jurisdiction are impacted. Id.§ 13402 (a) & (d), 123 Stat. at 260-62. For any breach involving 500 or more individuals, the covered entity must also provide notice immediately to the Secretary of Health and Human Services. Id. For breaches involving less than 500 individuals, the covered entity may maintain a log of such breaches and provide the log annually to the Secretary. Id.

The notifications of breach that covered entities provide to individuals under the ARRA must include the following information, to the extent possible:

(1) A brief description of what happened, including the date of the breach and the date of the discovery of the breach, if known. (2) A description of the types of unsecured protected health information that were involved in the breach (such as full name, Social Security number, date of birth, home address, account number or disability code). (3) The steps individuals should take to protect themselves from potential harm resulting from the breach. (4) A brief description of what the covered entity involved is doing to investigate the breach, to mitigate losses and to protect against any further breaches. (5) Contact procedures for individuals to ask questions or learn additional information, which shall include a toll-free telephone number, an e-mail address, Web site or postal address.Id. § 13402(f), 123 Stat. at 262. The Act directs the Secretary of Health and Human Services to promulgate interim final regulations with regard to the notification requirements no later than 180 days after the enactment date of the Act-by no later than August 16, 2009. Id. § 13402(j), 123 Stat. at 263. The above-described notification requirements will then apply to all breaches "that are discovered on or after the date that is 30 days after the date of publication of such interim final regulations." Id.

The ARRA also expands HIPAA's existing civil penalties and enforcement provisions, with such expanded penalties being in effect for all violations that occurred after February 17, 2009. Id. § 13410, 123 Stat. at 271-76 (to be codified at 42 U.S.C. § 17939). The Act categorizes HIPAA's civil penalties into four tiers based on the person's culpability with regard to the violation in question and the time in which the person corrects the violation. See id. The ARRA also expands HIPAA's enforcement provisions by providing state attorneys general with authority to bring civil actions in federal court against any person whose violations pose a threat to or harms one or more residents of the state. See id. State attorneys general bringing such actions may seek to enjoin these potentially harmful violations or to obtain damages. Id.

Expansion and modification of COBRA

The portion of the ARRA that has almost certainly received the most widespread publicity surrounds the Act's COBRA amendments. See id.§ 3001, 123 Stat. at 455-66 (to be codified at 26 U.S.C. § 6432). The Act expands COBRA in ways that, although temporary, will dramatically impact employers and eligible individuals alike. Most significantly, the ARRA offers "assistance eligible individuals" (AEIs) a 65 percent subsidy of their required COBRA premiums and, for certain AEIs, an additional enrollment period within which to elect COBRA coverage. Id.

The ARRA defines AEI to include any person who loses health coverage as a result of being "involuntarily terminated" between September 1, 2008, and December 31, 2009, as well as the terminated person's dependents, as long as the person's modified adjusted gross income is $125,000 or less ($250,000 or less for joint filers). Id., 123 Stat. at 457, 465-66 (to be codified at 26 U.S.C. §§ 6432 & 139C). The subsidy is phased out as modified adjusted gross income increases from $125,000 to $145,000 ($250,000 to $290,000 for joint filers), so that there is no subsidy at all above those levels. Id., 123 Stat. at 465-66 (to be codified at 26 U.S.C. § 139C). A reduced premium will often still be provided to an individual who turns out to be ineligible for the subsidy due to income limitations; however, in such a case, the amount of the premium reduction is taxable to the individual. See id. If a highly-paid individual wishes to avoid a taxable subsidy, he or she may permanently waive the right to any premium assistance. Id., 123 Stat. at 466.

Under the ARRA, an AEI pays only 35 percent of her COBRA premium that would otherwise be charged under the group health plan. Id., 123 Stat. at 455. The employer-or the plan, in the case of a multiemployer plan-pays the remaining 65 percent of the COBRA premium. See id., 123 Stat. at 455, 462-64. In turn, the employer (or plan) is able to obtain a reimbursement of the 65 percent subsidy through a payroll tax credit to the employer (or plan) or, in some limited cases, to the insurer. Id. Entities providing subsidies will take the payroll tax credit on the Form 941 that it files for the period during which it paid the subsidies. See id. The IRS will then treat payment of the subsidized premium as a deposit of payroll taxes for purposes of things such as penalty computations. See id. If the payroll tax credit does not reimburse the entity for the total amount of the COBRA subsidies it has paid, the Treasury will directly reimburse any remaining amount. See id.

The Internal Revenue Service has released guidance that will help employers claim credits for the COBRA subsidies that they pay for their former employees under the ARRA. The IRS guidance-which is in question-and-answer format-and the form that employers will use to claim the new tax credit-IRS Form 941-may be found on the IRS Web site. See http://www.irs.gov/newsroom/article/0,,id=204708,00.html.

The ARRA also creates an additional enrollment period during which certain AEIs may elect COBRA coverage. Id., 123 Stat. at 457-58. To ensure that all AEIs are made aware of this extended election period, the Act required all plan administrators to provide amended COBRA notices to AEIs within 60 days of the enactment of the Act-on or before April 18, 2009. ARRA, § 3001, 123 Stat. at 459-60. In essence, employees who were terminated between September 1, 2008, and December 31, 2009, and who did not initially elect COBRA coverage have a new election period under the ARRA. Id., 123 Stat. at 457. These employees have 60 days after receiving the new COBRA notice during which they may elect COBRA coverage at the subsidized rate. Id. The COBRA coverage starts effective with the first period of coverage beginning after February 17, 2009-the date the ARRA was enacted-and will not continue past the maximum coverage period based on the AEI's qualifying event. Id.

The Act also allows employers to provide employees who were involuntarily terminated since September 1, 2008-even those who previously elected COBRA coverage-with a choice to elect coverage under an option other than the option by which they were covered at the time of termination. Id., 123 Stat. at 455-56. However, employers may only offer the option of such alternative coverage as long as such option (i) is made available to active employees, (ii) has the same or lower cost (pre-subsidy) as the option under which they previously covered, and (iii) is other than a health FSA or coverage consisting only of dental, vision or certain other limited services. Id. If such an alternative option exists, an AEI may elect the same within 90 days following receipt of the required notice. Id.

The Act further requires employers to add to current COBRA notices the information about the premium subsidy and the option to enroll or to provide this information to terminated employees in a separate document. Id., 123 Stat. at 458-60. The additional information or notification must include the following: (1) "the forms necessary for establishing eligibility for premium reduction"; (2) "the name, address, and telephone number necessary to contact the plan administrator"; (3) "a description of the [60-day] extended election period"; (4) a description of the qualified beneficiary's obligation to notify the plan of his or her eligibility for coverage under another group health plan or Medicare and the penalty for failing to do so; (5) a prominently displayed description "of the qualified beneficiary's right to a reduced premium and any conditions on entitlement to the reduced premium"; and (6) if applicable, a description of the right to elect an alternative coverage option within 90 days, as described above. Id., 123 Stat. at 459.

The Department of Labor has issued several model notices, which contain the information that qualified beneficiaries must receive in different situations. There are four model notices in total, including a full and abbreviated General Notice, a Notice in Connection with Extended Election Periods and an Alternative Notice. Employers and plan administrators can find these model notices at http://www.dol.gov/ebsa/COBRAmodelnotice.html. Employers and COBRA administrators will have to tailor these model notices to comply with the administrative procedures and other requirements of their particular group health plans. With regard to the Alternative Notice specifically, insurers will need to make certain that their notices conform to applicable state laws.

Whistleblower provisions

Much of the current economic woes facing the United States are the result of-or at least have been blamed heavily on-corporate misgovernance. As a result, there has been a dramatic increase in media coverage and public scrutiny of organizational actions. Thus, it is no surprise that the ARRA contains enhanced whistleblower provisions that apply to non-federal employers who receive funds under the ARRA. See ARRA, § 1553, 123 Stat. at 297-302. The Act's whistleblower provisions prohibit covered employers from taking tangible employment action against an employee who reports employer misconduct, outline the way in which employees can report such misconduct, and create a private right of action for employees who report misconduct under the Act. Id. The Act also requires all covered employers to post notice of the rights and remedies provided under the Act's whistleblower provisions. Id. § 1553(e), 123 Stat. at 301.

Under the ARRA, employers may not discharge, demote or otherwise discriminate against an employee for disclosing "information that the employee reasonably believes is evidence of" any of the following:

(1) gross mismanagement of an agency contract or grant relating to covered funds; (2) a gross waste of covered funds; (3) a substantial and specific danger to public health or safety related to the implementation or use of covered funds; (4) an abuse of authority related to the implementation or use of covered funds; or (5) a violation of law, rule, or regulation related to an agency contract (including the competition for or negotiation of a contract) or grant, awarded or issued with regard to covered funds.Id. § 1553(a), 123 Stat. at 297. An employee may report his or her suspicions of the above types of misconduct "to the Board, an inspector general, the Comptroller General, a member of Congress, a regulatory or law enforcement agency, a person with supervisory authority over the employee (or [a] person working for the employer who has the authority to investigate, discover, or terminate misconduct), a court or grand jury, the head of a Federal agency," or the representatives of any of the foregoing individuals or entities. Id.

An employee who believes that her employer has retaliated against her in violation of the Act may submit a complaint regarding the retaliation to the inspector general of the appropriate agency. Id.§ 1553(b)(1), 123 Stat. at 297. The inspector general then must investigate the complaint and either (1) issue a report of his or her findings to the head of the agency or (2)make a determination that the complaint is frivolous or does not relate to covered funds. Id.§1553(b)(2), 123 Stat. at 297-98. For non-frivolous, covered complaints, the agency head then determines whether the employer has acted in violation of the Act. Id.§ 1553(c)(2), 123 Stat. at 300.

Upon finding a violation, the agency head is to "take 1 or more of the following actions": (1) "Order the employer to take affirmative action to abate the reprisal"; (2) "Order the employer to reinstate the [complainant] to the position that [he or she] held before the reprisal" and provide the complainant with back pay, compensatory damages and all other employment benefits that would apply to the complainant had the retaliation not occurred; or (3) "Order the employer to pay the complainant an amount equal to the aggregate amount of all costs and expenses (including attorneys' fees and expert witnesses' fees)" that the complainant incurred in bringing the complaint. Id.

The Act also allows an employee to bring a civil action against his employer when he has exhausted all administrative remedies with respect to his retaliation complaint. Id.§ 1553(c)(3), 123 Stat. at 300. An employee who brings a civil action under this provision may seek compensatory damages, back pay, reinstatement, benefits and the costs and fees associated with the action. Id. Either party to a civil action under this section may request a jury trial of the case. Id.

Significantly, the Act disallows the waiver of the rights and remedies provided therein by way of "any agreement, policy, form, or condition of employment, including any predispute arbitration agreement." Id.§ 1553(d)(1), 123 Stat. at 301. The lone exception to this preclusion of waiver is where a collective bargaining agreement provides for the mandatory arbitration of claims arising under the agreement. Id. § 1553(d)(3), 123 Stat. at 301.

Subsidization and restructuring of state unemployment systems

The unemployment rates in states across the nation are quickly reaching levels greater than those states have seen in decades. Due to this social setting, the ARRA's inclusion of provisions that provide assistance to unemployed workers was of little surprise. Significantly, the Act provides substantial funding to each state that makes various changes to its unemployment program. See ARRA, § 2003(a), 123 Stat. at 440 (to be codified at 42 U.S.C. §1103(f)(1)(B)). A state seeking to receive maximum subsidization under the Act must increase the level of unemployment benefits a worker may obtain, modify the eligibility requirements by creating additional qualifying events and extend the duration of time during which a worker may receive benefits. See id., 123 Stat. at 439-43 (to be codified at 42 U.S.C. § 1103(f)).

The most significant change in states' unemployment systems that will result from the ARRA is the alteration of the eligibility structure of those systems, which will allow many more workers to qualify for benefits. In order to receive the maximum level of funding under the ARRA, a state must restructure its eligibility requirements by expanding eligibility in at least two of the following four ways: (1) permitting an individual only seeking part-time work to be eligible; (2) extending eligibility to an individual who separates from employment for a "compelling family reason," which the Act defines to include domestic violence, illness or disability of an immediate family member and relocation due to a spouse's occupation; (3)providing benefits to an individual who is "enrolled and making satisfactory progress in a state-approved training program or in a job training program"; and (4) raising the amount of benefits an individual can receive for his or her dependents (if the state currently provides for such a benefit). Id., 123 Stat. at 440-41 (to be codified at 42 U.S.C. § 1103(f)).

Regardless of which two of the four above-listed revisions a state decides to incorporate into its unemployment system, any combination thereof will undoubtedly result in a significant number of otherwise ineligible individuals becoming eligible to receive benefits. This will in turn lead to a marked increase in contributions from employers.

Miscellaneous provisions

Perhaps in response to the public outcry against the bonuses received by high-profile corporate executives, the ARRA creates numerous restrictions on the compensation of the executives of corporations that have received funding through the Troubled Asset Relief Program (TARP). See id.§§ 7000-7002, 123 Stat. at 516-21 (to be codified at 12 U.S.C. §5221)). The ARRA limits these executives' compensation through a restriction on golden parachute payments, the mandatory creation of a board compensation committee that meets at least semiannually, the mandatory creation of a company policy on luxury expenditures, and a prohibition on any compensation plan that encourages earnings manipulations. See id. § 7001, 123 Stat. at 517-19 (to be codified at 12 U.S.C. § 5221(b)(3)). Subject to two exceptions, the ARRA also disallows TARP recipients from providing their executives with any bonus, retention award or incentive compensation. Id.§ 7001, 123 Stat. at 518 (to be codified at 12 U.S.C. §5221(b)(3)(D)). The number of executives to whom these restrictions apply is contingent upon the amount of TARP funding the corporation received. See id. (to be codified at 12 U.S.C. §5221(b)(3)(D)(ii)).

One of the key features of the ARRA is the inclusion of numerous methods through which corporations and other organizations can receive monetary support from the federal government for engaging in certain types of business activities. However, the receipt of federal support for such activities does not come with no strings attached. For example, the General Provisions of the Act require all contractors and subcontractors on projects funded through the Act to pay their employees "at rates not less than those prevailing on similar work in the locality as determined by the Secretary of Labor in accordance with [the Davis-Bacon Act]." Id.§ 1606, 123 Stat. at 303.

Additionally, while the final version of the Act removed the provision that would have been the most influential on immigration law-requirements dealing with the federal E-Verify program-there remain several aspects of the Act that impact the subject of immigration. First, the ARRA precludes companies from taking advantage of the Act's small business lending program if the Secretary of Homeland Security or the Attorney General determine that the organization has "engaged in a pattern or practice of hiring, recruiting or referring for a fee, for employment in the United States an alien knowing the person is an unauthorized alien." Id.§502, 123 Stat. 152-53. The ARRA also contains a provision-the "Employ American Workers Act"-under which employers receiving aid under the ARRA must attempt to hire laid-off American workers before they recruit and hire workers from other countries who are present in the country on a H1-B visa. Id.§ 1611, 123 Stat. at 305. While this provision does not disallow companies from hiring workers with H1-B visas, a company desiring to do so must first show good cause as to why it is unable to fill the positions in question with American workers. Id.

Conclusion

As the foregoing discussion demonstrates, the ARRA has dramatically revised the law in numerous ways. Practitioners-especially those practicing corporate law in general and employment and benefits law in particular-must accordingly become aware of the ARRA's multiple provisions affecting employers and employees in order to properly counsel and advise their clients. While this article does not scratch the surface of the myriad of ways in which the ARRA has affected and continues to affect the law in this nation, it highlights several of the more significant ways in which the ARRA has impacted the practice of law and employer-employee relationships and responsibilities across our nation.

Daniel T. Sulton is a partner and Lucas J. Asper is an associate in the Spartanburg office of Ford & Harrison, LLP.