Employee issues can be a drain on a company’s resources and adversely affect the bottom line. O’Neil, Cannon, Hollman, DeJong & Laing S.C. provides a full array of preventative counseling and litigation services to minimize legal action so you can focus your energy on your business instead of employment law issues.
We help employers manage all aspects of the employer/employee relationship: including, hiring and firing issues, discrimination and harassment complaints, wage and hour matters, ADA and FMLA compliance, union issues, unemployment compensation claims, worker’s compensation retaliation claims, OSHA investigations and citations, and contract issues. We are proficient in state and federal employment laws and regulations.
O’Neil, Cannon, Hollman, DeJong & Laing’s employment attorneys partner with clients to help place them in control of the employer/employee relationship and minimize claims. We prepare handbooks; contracts; non-compete, non-solicitation, or confidentiality agreements; policies and procedures; and provide supervisory and management training designed specifically for your company.
Today’s employees are more aware than ever of their workplace “rights.” When employee issues arise, companies need to consider the legal implications of employment decisions. We thoroughly analyze difficult employee situations to provide you with a practical plan of action. We believe that counseling is the most effective way to reduce the risk of employment related litigation.
Our attorneys represent companies before state and federal agencies. We also appear frequently in front of the Wisconsin Department of Workforce Development’s Equal Rights, Worker’s Compensation, and Unemployment Compensation divisions, the Equal Employment Opportunity Commission (EEOC), OSHA, the Department of Labor, the NLRB, and in state and federal courts. We believe in an aggressive defense of meritless claims and have secured dismissal of many discrimination complaints at the ERD or EEOC level. Where appropriate, we will advise early settlement or mediation in order to resolve risky claims before the company invests considerable time and expense in litigation.
In Manitowoc Co. v. Lanning, 2015AP1530 (Aug. 17, 2016), the Wisconsin Court of Appeals ruled—for the first time—that Wisconsin Statute § 103.465, which governs the enforceability of restrictive covenants in employment relationships, applies to employee non-solicitation provisions.
In 2008, John Lanning, an employee at The Manitowoc Co., entered into an agreement that prohibited him, for a period of two years after his employment ended, from either directly or indirectly soliciting, inducing, or encouraging “any employee to terminate their employment with Manitowoc” or to “accept employment with any competitor, supplier or customer of Manitowoc.” The Manitowoc Co. claimed that, after leaving the company in 2010 to work for a direct competitor, Lanning communicated with at least nine employees in connection with possible employment opportunities at his new employer. The Manitowoc Co. claimed this was a violation of the employee non-solicitation provision and filed suit against Lanning. The Circuit Court granted summary judgment in The Manitowoc Co.’s favor, awarding damages and attorneys’ fees. Subsequently, Lanning appealed to the Wisconsin Court of Appeals, which ultimately reversed the lower court’s ruling.
On appeal, The Manitowoc Co. argued that § 103.465 should not apply to employee non-solicitation provisions but, rather, only to covenants not to compete The Court quickly dismissed that argument, stating that any covenant between an employer and employee that “seeks to restrain competition” or operates as a “trade restraint” clearly falls within the confines of § 103.465. The Court noted that the employee non-solicitation provision limited how Lanning could compete with The Manitowoc Co. and “did not allow for the ordinary sort of competition attendant to a free market, which includes recruiting employees from competitors.” Therefore, the Court determined that the employee non-solicitation provision had to comply with § 103.465.
With the applicability of § 103.465 to employee non-solicitations decided, the Court then embarked to determine whether the provision The Manitowoc Co. sought to enforce was reasonably necessary to protect the Company’s legitimate business interests from unfair competition from a former employee. The Manitowoc Co. argued that it had a legitimate interest in preventing Lanning from “systematically poaching” its employees, and it believed the provision was narrowly tailored to protect it from such a threat.
The Court disagreed, however, determining that the actual terms of the agreement, as written, were far too broad and, therefore, unenforceable. As drafted, the non-solicitation provision prevented Lanning from soliciting any employee, whether entry level or a key employee, to leave The Manitowoc Co. for any reason, whether to retire to spend more time with family or work for a competitor. Because the Court found that the provision restricted “an incredible breadth of competitive and noncompetitive activity,” it concluded that the employee non-solicitation provision, as drafted, did not protect a legitimate business interest and, as such, the provision could not pass the strict scrutiny that § 103.465 required and, accordingly, found the covenant unenforceable.
In light of this decision, employers should review their current agreements that contain employee non-solicitation agreements. Although employers have the right to require employees to enter into agreements with employee non-solicitation provisions, the provisions must be crafted narrowly and carefully—just like covenants not to compete—to meet the strict scrutiny analysis required by § 103.465. To be enforceable, employee non-solicitation provisions must focus on protectable interests, such as restricting former employees from soliciting current employees with whom the former employee had a direct business relationship with from ending their employment in order to engage in direct competitive activity adverse to the employer. An experienced management-side employment attorney can assist employers with drafting such provisions in order to meet the enforceability standards required by the Wisconsin restrictive covenant statute.
The Internal Revenue Service recently published the cost-of-living adjustments to the dollar limits under various employer-sponsored retirement and health plans for 2017. The majority of the dollar limits are either unchanged or will increase only slightly.
Employer-sponsors of benefit plans should update payroll and plan administration systems for the 2017 limits and ensure that any new limits are incorporated into relevant participant communications, enrollment materials and summary plan descriptions, as applicable.
Health FSA Employee Contribution Limit Increasing to $2,600
For 2017, the maximum dollar limitation on employee salary reductions for contribution to health flexible spending arrangements (health FSAs) will increase to $2,600 from the prior limit of $2,550.
2017 Qualified Retirement Plan Limits
For retirement plans beginning on and after January 1, 2017, the following dollar limitations apply for tax-qualified retirement plans:
- The elective deferral limit under Section 402(g) or the Internal Revenue Code (Code) will remain unchanged at $18,000 for employees who participate in:
- Code Section 401(k) plans;
- Code Section 403(b) plans; and
- Most Code Section 457 plans.
- The catch-up contribution limit for those age 50 and over under will remain unchanged at $6,000 for all plans other than SIMPLE 401(k) and SIMPLE IRAs. (For these SIMPLE plans, the catch-up contribution limit for those age 50 and over under will remain unchanged at $3,000).
- The limitation on the annual benefit for a defined benefit plan will increase from $210,000 to $215,000.
- The limitation on annual additions (meaning total employee plus employer contributions) to a participant’s defined contribution plan will increase from $53,000 to $54,000.
- The limit on the amount of annual compensation taken into account under a tax-qualified retirement plan will increase from $265,000 to $270,000.
- The limitation used in the definition of a highly compensated employee (HCE) under Code Section 414(q) will remain unchanged at $120,000.
- The limitation used in the definition of a key employee in a top-heavy plan under Code Section 416 will increase from $170,000 to $175,000.
- The dollar amount under Code Section 409(o) for determining the maximum account balance in an employee stock ownership plan (ESOP) subject to a five-year distribution period will increase from $1,070,000 to $1,080,000. The dollar amount used to determine the lengthening of the five-year distribution period will increase from $210,000 to $215,000.
Prior Guidance on Additional 2017 Limits
Social Security Taxable Wage Base
On October 18, the Social Security Administration announced that the Social Security wage base for 2017 will increase significantly (from $118,500) to $127,200. This is the maximum wage base subject to the FICA tax and is also the maximum “integration level” for plans using “permitted disparity.”
2017 Health Savings Account Limits
The combined annual contributions to an HSA must not exceed the maximum annual deductible HSA contribution, which for 2017, is $3,400 for single coverage and $6,750 for family coverage. The catch-up contribution for eligible individuals age 55 or older by year end remains at $1,000.
The Department of Labor’s (DOL’s) final overtime rule (the Final Rule) takes effect December 1, 2016. As described in our prior post, the cumulative effect of the Final Rule will be to significantly expand the categories of employees eligible for overtime protection. As part of preparing to comply with the new wage and hour law, employers must also consider whether and how any changes to compensation practices will affect employee benefit plans. This post describes the tax-qualified retirement plan issues that employers should take into account as the December 1 Final Rule deadline approaches.
To the extent that benefit plan documents condition eligibility on an employee’s classification (such as salaried, hourly, exempt, or non-exempt), compensation structures revised to comply with the Final Rule could cause large cohorts of employees to either lose or gain benefits. As an example, if a specific employee is reclassified from hourly to salaried status (or vice versa) in response to the Final Rule, that individual might gain (or lose) the right to participate in an employee benefit plan. Corresponding modifications to the terms of those plans may be necessary to continue to provide current benefit levels and, or, to ensure that retirement plans will continue to satisfy underlying participation requirements in light of resulting eligibility changes.
By the same token, FLSA-related compensation adjustments may result in unanticipated changes to overall benefit contribution obligations. This is particularly true for 401(k)s, and similar tax-qualified retirement plans, under which employer contributions are calculated in accordance with a specific plan definition of “compensation.” The impact of pay changes on employer retirement plan contributions will vary case by case, but in general, may fluctuate not only to the extent that employee base pay is increased or decreased, but also by whether a given plan’s “compensation” definition includes or excludes overtime pay.
Tax-Qualification Compliance Issues
In some cases, plan compensation definitions should be amended as required to attain a result in line with overall benefits and compensation objectives. Although a tax-qualified retirement plan may exclude (or be amended to exclude) overtime pay from its compensation definition, such exclusion is permissible only if the compensation taken into account after the exclusion satisfies annual nondiscrimination testing requirements. Employers that expect a significant increase in overtime wages as a result of compliance with the Final Rule, as well as employers with plans already excluding overtime pay, should determine now whether projected increases in overtime wages could affect their plans’ ability to continue to satisfy tax nondiscrimination requirements in light of existing or revised plan terms.
Employers choosing to amend a retirement plan’s compensation definition to exclude overtime pay will need to consider other legal and operational issues in addition to nondiscrimination testing. For example, in the case of a “safe harbor” 401(k) plan, the modification may need to be coordinated with the start of a plan year. In addition, time may be needed to update payroll systems and plan administrative processes to properly capture the new pay exclusion.
Proceed with Caution before Reducing Benefits to Offset New Overtime Costs
Some employers may be facing higher compensation costs as part of a strategy for maximizing the available exemption from the overtime rules. While it may be tempting to offset some of these costs by reducing employee benefits spending, it is crucial to consider underlying benefit-related legal requirements as they proceed. In some cases, benefit reductions are limited by law, while in others, unintended consequences may result.
For example, the Affordable Care Act requires large employers (generally 50 employees and above) to either offer “affordable” and “minimum value” health care coverage to certain employees or risk exposure to significant tax penalties. A large employer may incur penalties, without regard to whether an employee is exempt or non-exempt under the Final Rule, if he or she works more than 30 hours per week but is not offered ACA-compliant coverage. A reduction or elimination of an employer premium contribution (or an increase in employee cost sharing) must therefore be carefully analyzed to assess the extent to which it could affect a group health plan’s “minimum value” and “affordability” metrics, thereby increasing employer exposure to ACA penalties.
It is no surprise that the Final Rule requires many employers to make extensive changes to their compensation and employee classification practices. What may be more surprising is the extent to which FLSA-related changes promise to impact employee benefit plans, as well. To avoid any benefits cost or compliance surprises, employers should carefully review whether and how sponsored employee benefit plans will be affected by other changes made to comply with the Final Rule.
On October 12, 2016, the Occupational Health and Safety Administration (“OSHA”) agreed to further delay the enforcement of the anti-retaliation provisions of the injury and illness tracking rule until December 1, 2016. Enforcement was originally scheduled to begin August 10, 2016 and then delayed until November 10, 2016. OSHA’s agreement to once again delay enforcement of its new anti-retaliations provisions is in response to a request from the U.S. District Court for the Northern District of Texas, which is currently considering a motion challenging OSHA’s new rules.
Despite its self-imposed delay in enforcement of its anti-retaliation provisions, last week, OSHA released a memo with examples discussing in more detail how the new anti-retaliation amendments will be interpreted and implemented by OSHA. See OSHA Memorandum for Regional Administrators (10/19/2016).
OSHA explained that its purpose in including the new anti-retaliation provisions is to address workplace retaliation in three specific areas: (1) Disciplinary Policies; (2) Post-accident Drug Testing Programs; and (3) Employee Incentive Programs. Although neither employee disciplinary policies, post-accident drug testing programs, or employee incentive programs are expressly prohibited by the new rules, employers will need to be careful about how their policies or programs are drafted and enforced so as to not, in the eyes of OSHA, discourage or deter employees from reporting work-related injuries or illnesses.