Recently, in Johnson v. Arvin Edison Water Storage Dist. (2009) 174 Cal.App.4th 729, the 5th District Court of Appeal in California held that a water district, which is a municipal corporation organized as a sort of quasi-governmental entity for the purpose of storing and delivering water to its community, is in fact exempt from the more stringent State overtime and meal period regulations contained in the California labor code.

The plaintiff argued that the water district was  not only subject to the Fair Labor Standards Act (FLSA – 29 U.S.C. Section 201, et seq.), but also to the more stringent wage and hour regulations contained in the California Labor Code, unless expressly exempted in the code itself.  According to the Plaintiff, under statutory construction rules, the Legislature intended that water storage districts provide their employees with overtime and meal periods in conformance with Labor Code Sections 510 (OT provision) and 512 (meal period provision), and the relevant IWC Wage Order. Plaintiff argued that these Labor Code requirements do not infringe on the execution of the District’s sovereign powers.

The plaintiff also stated that the District was not exempt as a “municipal corporation” under Section 220 of the Labor Code, which would have required the district to immediately pay wages due upon an employee’s termination or resignation under sections 201 and 202 and for penalties for failure to do so under section 203.

In affirming the judgment that dismissed the plaintiff’s complaint, the Court held that unless the Labor Code provisions are specifically made applicable to public employers, they only apply to employers in the private sector. Pointing out that because sections 510 and 512 of the Labor Code do not expressly apply to public entities, they are not applicable to water districts.

Additionally, the Court noted that applying sections 510 and 512 of the Labor Code to the District would infringe on its sovereign power to regulate its workforce and would violate the established rule recognized by the Legislature, that public entities are not subject to a general statute unless expressly included.  Finally, the court clarified that a Water District is a “municipal corporation” as that term is used in the Labor Code and, therefore, exempt from Sections 201, 202 and 203.

Although not as stringent as California wage and hour requirements, the water district employees are not without some protection, such districts should still comply with wage and hour laws set forth in the FLSA.

As many of you may know, businesses are getting more creative in finding ways to save money on health care costs as those costs continue to rise.  One of the methods that employers have turned to more recently is workplace wellness programs [article discussing Safeway's plan]. The idea is that these wellness plans help the employer get ahead of the cost curve by enticing employees (usually though voluntary incentives) to participate in health risk assessments and preventive medical treatment before unattended health issues turn into large hospital claims, which usually make up the largest portion of employer’s health care costs.

This article is not an exhaustive review of the legal technicalities implicated by the adoption of a wellness programs; rather, it is designed to put employers on notice of some of the issues that are out there and some pending rule changes that may impact these plans. We will revisit these issues again later this year when the expected rule changes take effect.

HIPAA and Wellness Programs, A Simple Overview:

Existing regulations under HIPAA (Health Insurance Portability and Accountability Act) place certain restrictions on wellness plans.  Many wellness programs feature financial incentives for employees to use them, such as reduced premiums or deductibles. Other programs charge higher premiums if people do not enroll in the wellness program. HIPAA’s goal is to be sure that these incentives do not unduly impact any particular class of employees, resulting in unfair discrimination.

While there are many points to be aware of in designing a wellness program, a couple points stand out. The first of which is the limits on incentives that can be used to entice participation in the program. Generally, a program cannot exceed 20% of the cost of the health coverage in setting the amount of the incentive or reward.  Whether this 20% limit is a percentage of the total health coverage cost or just the employee’s share of the cost of coverage depends on how the plan is structured as it relates to dependents, spouses, etc..  Just know there are limits on the incentives.  Rewards or incentives for the employee to participate in the wellness program may take the form of rebates, or contributions toward the employee share of the premium, waivers of co-pays or deductibles, or other variations.

HIPAA also requires that there be waivers from the wellness program for certain individuals. For example, an employer might offer a 20% premium discount for employees who have an annual cholesterol test and achieve results below a certain cholesterol count. The employer would also have to offer reasonable alternatives or waivers to those who are medically unable to achieve those cholesterol levels.

In addition to the requirements under HIPAA, it is important to keep in mind that the Americans with Disabilities Act (ADA) and California Fair Employment and Housing Act (FEHA) also impose requirements on wellness programs. Complying with HIPAA’s nondiscrimination rules and wellness program requirements does not ensure compliance with the ADA or FEHA regulations.

Wellness Programs to be Effected by New Regulations?

New regulations and rule making on the horizon may impact workplace wellness programs. The employment provisions contained in Title II of the Genetic Information Nondiscrimination Act (“GINA”), prohibit employers from discharging, refusing to hire or otherwise discriminating on the basis of genetic information.  Although, this new law becomes effective November 21, 2009, final GINA regulations have yet to be passed.  The Equal Employment Opportunity Commission (EEOC) has recently approved a proposed final rule to implement Title II.  The proposed regulations are being reviewed and are expected to be published by the EEOC just prior to the law’s effective date.

In essence, GINA prohibits employers from discharging, refusing to hire, or otherwise discriminating on the basis of genetic information, and from intentionally acquiring genetic information about applicants and employees. There are also requirements on how the employer should handle the confidential information. GINA defines “Genetic information” broadly, but does permit employers to acquire genetic information when it is requested as part of an employer’s “health or genetic services, including such services offered as part of a voluntary wellness program.” It is expected that the EEOC will clarify the nature and scope of this exception in the final regulations before November 21, 2009.

In requesting comments on its proposed regulations, the EEOC acknowledged that under the Americans with Disabilities Act, the Commission has said that a wellness program is voluntary if it neither requires employees to participate nor penalizes employees for non-participation.  The issue then becomes at what point do incentives, rebates, or other employer tools turn the wellness program into something less than voluntary.

Out of about 40 comments received by the EEOC during its information gathering process, approximately 16 of those addressed the issue of whether and when a wellness program should be considered “voluntary” under GINA.  Of these 16 comments, 4 requested that the EEOC’s final regulations clarify that a wellness program would not be “voluntary” if the program provided individuals any financial inducement to provide “genetic information.”  The remaining comments requested the EEOC issue a final rule clarifying that a wellness program would be “voluntary” if the inducement provided to employees fell within the HIPAA 20% cap governing financial rewards (discussed above) for participating in wellness programs covered by HIPAA.

As many employers inquire about family medical history in the course of administering wellness programs, usually through “health risk appraisals” aimed at identifying health risks, and many wellness programs also are made available to family members who participate in group health programs, the final GINA regulations will affect the design and implementation of wellness programs. Because the EEOC also enforces the ADA, whatever position it takes on the GINA regulations, will likely become its enforcement position for determining whether wellness programs violate the ADA.

While the ADA normally requires that employee medical inquiries and examinations be “job-related and consistent with business necessity,” it permits employers to conduct “voluntary” medical examinations, including “voluntary” medical histories, which are part of an employee wellness program.  As with GINA, the unanswered question is whether a program remains “voluntary” under the ADA if it provides a financial incentive to answer medical inquiries or participate in medical examinations.

In previous comments by the EEOC, the agency has stated that providing a monetary incentive may render the program involuntary, depending on factors like the size of the incentive, and whether the incentive results in significantly higher premiums for employees not participating in the wellness program. The EEOC, as recent as March 2009, stated in an informal opinion that requiring a health risk assessment as a prerequisite for obtaining health insurance coverage would violate the ADA.

Employers will need to keep an eye on these developments and evaluate whether their wellness programs need any modification due to changing regulations.  Employers should not be scared away from implementing a wellness program.  This kind of creative problem solving is what is necessary today for those businesses looking to minimize costs and remain competitive.

Federal contractors and subcontractors with Federal Acquisition Regulation verification (FAR) clauses in their contracts are reminded that they must use the E-Verification system for I-9 compliance effective September 8, 2009 (the US Citzenship and Immigration posting is here).

E-Verify compares information from the Employment Eligibility Verification Form (I-9) against federal government databases to verify workers’ employment eligibility. The system facilitates compliance with federal immigration laws and helps to deter unauthorized individuals from attempting to work and also helps employers avoid employing unauthorized aliens.

All U.S. employers must complete and retain a Form I-9 for each individual they hire for employment in the United States. This includes citizens and non-citizens. On the form, the employer must examine the employment eligibility and identity document(s) an employee presents to determine whether the document(s) reasonably appear to be genuine and relate to the individual and record the document information on the Form I-9. The list of acceptable documents can be found on the last page of the form.

The Form and Instructions are here, and in Spanish here.

California employers who order their labor posters and postings from the various sources out there, should also be aware and remember that the Employer is also required to post a copy of the appropriate Wage Order from the Industrial Welfare Commission of the California Department of Industrial Relations.  Do not forget this component of the California posting requirements.