November 25, 2013

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Prepared by Ted Gentry
November 2013

I Can Be Sued Personally For Wage and Employment Tax Claims?

Clients tend to think that the corporate shield automatically insulates officers, managers, and owners from personal liability for corporate debts. It is intuitive that individuals might be responsible for tort claims and/or discrimination claims for which they were “bad actors,” but there are several examples where individuals can be held liable for what you may otherwise consider to be “corporate” obligations.  For instance, a recent Fourth Circuit case (the federal court of appeals that decides appeals from federal courts in South Carolina) provided a cautionary tale to corporate officers, directors, and owners who willingly turn a blind eye to payroll tax obligations. In Johnson v. United States, a wife who served as the formal, but largely symbolic, role as an officer of the corporation was assessed with a penalty of over $300,000 when she was deemed to be a “responsible officer” after her husband (who actually ran company operations) failed to pay employment taxes to the Internal Revenue Service. While the facts of this case are unique (and appear to demonstrate an intent on the husband’s part to circumvent the payment of taxes), it provides a useful reminder that personal liability may be assessed against corporate officers when a company fails to pay employment taxes. Other statutes are similarly broad. For example, the South Carolina Payment of Wages Act requires an “employer” to pay all “wages” owed to employees in full and on time. “Wages” includes, among other things, salary, commissions, and vacation and sick leave payments. The Act broadly defines “Employer” as “every person, firm, partnership, association, corporation … and any agent or officer of the above classes employing any person in this State.”  Courts construing this provision have imposed individual liability on officers who “knowingly permit” a Company to violate the Act (i.e., failure to pay the wages due). In the same vein, the federal Fair Labor Standards Act (which proscribes minimum wage and overtime pay) has held individual officers and managers personally liable as employers if they have significant degree of control over the employer’s operations. The take home lesson: be sure that your company pays its wages and payroll taxes on time and in full!

DOL Continues to Target Misclassification

The United States Department of Labor’s focus on independent contractor misclassification, which we have discussed in prior editions of Wyche at Work and other updates, continues to intensify since its launch in 2011. The DOL’s budget request for Fiscal Year 2014 allocated nearly $14 million to help identify misclassifications, recover unpaid taxes, and investigate violations. The new head of the agency, Secretary Thomas E. Perez, indicated his intent to further this enforcement initiative by recently referring to misclassification as “workplace fraud.”

As part of its initiative, the DOL has developed a Worker Classification Survey “to collect information about employment experiences and worker knowledge as to basic employment laws in order to understand employee experiences with worker classification issues.” The DOL plans to report on the findings of a nationally representative survey of workers and on a qualitative study of employers that includes results from in-depth employer interviews. The DOL has submitted the proposed survey to the Office of Management and Budget for review and approval.

Independent contractor misclassification is also getting attention on the legislative front. On the same day that Wyche at Work was presenting on the DOL misclassification initiative at a presentation at the Poinsett Club, the Senate Subcommittee on Employment and Workplace Safety held a hearing on Payroll Fraud: Targeting Bad Actors Hurting Workers and Businesses, focusing on the need for legislation outlawing “intentional misclassification.” At the hearing, the Senate subcommittee announced that they would introduce the Payroll Fraud Protection Act, S. 1687, which among other things would require employers to notify all employees and non-employees who perform services for remuneration of their status. It is unlikely that this bill will be passed, but the fact remains that the classification issue remains a hot-button topic, as lawmakers and regulators are motivated to protect worker rights and generating revenue.

We will continue to monitor these initiatives but encourage you in the meantime to re-examine your criteria for worker classification. The DOL website offers a variety of tools, including the elaws Employment Status Advisor, and we would be glad to assist in this process.

Social Media and the Workplace Part II

In last month’s edition of Wyche at Work, we began a three-part series on social media in the workplace by examining the pitfalls of accessing employee or applicant owned social media accounts. This month, we will take a closer look at another particularly important area: regulating employee conduct on their social media accounts.

As previously detailed in the June 2012 edition of Wyche at Work, the National Labor Relations Board has been targeting attempts to restrict employee online conduct (union and nonunion) as such conduct may qualify as protected concerted activity under the National Labor Relations Act.

Generally, the NLRB has distinguished between (i) restrictions on employee internet postings made on behalf of an employer, and (ii) restrictions on employee internet postings made on behalf of the employee. The NLRB has been much more forgiving with employer restrictions on employee’s internet postings made on behalf of the employer and permitted policies which:

  • restrict which employees may make comments on behalf of the employer;
  • prohibit other employees from making comments on behalf of the employer;
  • restrict the content and tone of postings by authorized employees; and
  • require employer approval of postings by authorized employees.

Although the NLRB approved restrictions on postings expressly made on behalf of the employer, it has been surprisingly vigilant about protecting employees’ personal postings. The NLRB has taken special measures to protect postings that:
(a) Are communicated on the employee’s time and equipment;
(b) Relate to terms/conditions of employment or exercise of NLRA rights; and
(c) Involve “concerted” activity.

Thus, the NLRB has consistently found seemingly innocuous social media policy provisions to be overly broad and vague because they could restrict NLRA protected concerted activity. For example, the NLRB has struck down provisions prohibiting employees from “making disparaging comments” or “transmitting confidential information” or “using harassing language”. The guidance cautions employers to craft their restrictions with as much specificity as possible.

The implementation of discipline for social media conduct has also gotten the attention of the NLRB. Going on-line and complaining with other employees about an employer’s policies, promotions, or other aspects of employee life with the company can be protected activity, even if the posts are disparaging to the company or its supervisors or the employees use inappropriate language.

Employers who attempt to regulate employees’ online conduct are often times driven by a concern for the company’s reputation, goodwill and overall morale. The NLRB has acknowledged the validity of these motives, but have tended to side with employees that such terminations may violate the protections afforded “concerted” activity under the NLRA. When drafting and implementing social networking policies, employers should be careful not to encroach on employees’ legally protected rights. Do not hesitate to contact Wyche if you have any questions about drafting or implementing a social media policy for your company,

Stay tuned next month for the last installment of our three-part series on social media in the workplace: creating manageable bring-your-own-device policies and company social media ownership policies.

Mental Health Parity and the ACA

Federal agencies recently released final rules implementing the Mental Health Parity and Addiction Equity Act (the “MHPAEA”), which requires that mental health or substance use disorder benefits are equivalent to medical and surgical benefits under group health plans and group and individual health insurance coverage. This “parity of benefits” applies to financial requirements (such as deductibles), treatment limitations (such as number of office visits), and the level of coverage offered by out-of-network providers.

The Affordable Care Act extended MHPAEA to apply to the individual health insurance market, and Health and Human Services rules implementing the ACA require health insurance issuers offering non-grandfathered health insurance coverage to comply with the MHPAEA regulations to satisfy the requirement to cover essential health benefits. The Department of Labor has also issued an additional FAQ on the ACA and MHPAEA.

If you have any questions about these or other workplace law topics, please contact Ted Gentry.

This update is provided by Wyche for educational and informational purposes only and is not intended and should not be construed as legal advice.