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HR Matters
September 2006 - Volume X, Issue 113
September 30, 2006
Labor & Employment NewsThere is No Duty to Arbitrate a Firing after a Union Contract Expires. An Ohio power company had a three-year contract with the local electrical union. The contract automatically renewed unless either party gave notice at least 60 days before the termination date indicating that it wanted to negotiate for a new contract. Although the contract provided a grievance/arbitration provision, the provision precluded an arbitrator from passing upon "any question arising from incidents that occur after [the] Agreement expired." At least 60 days before the contract expired, the union gave timely notice of its desire to negotiate a new contract. After the existing contract expired, an employee twice failed random drug tests. The company refused to arbitrate the dispute because the contract restrained the arbitrator's authority to pass upon questions arising from post-expiration events. The employee sued both the company and the union alleging that the company breached the expired collective bargaining agreement by discharging him and that the union failed to fairly represent him. The U.S. Court of Appeals for the Sixth Circuit disagreed and dismissed the employee's lawsuit because there was no collective bargaining provision requiring the arbitration of grievances and the union had no right to force arbitration by the company. (Kellhoffer v. Columbus S. Power Co.)
Sixth Circuit Comments on the Impact of Desert Palace on Summary Judgment. In Price Waterhouse v. Hopkins , the U.S. Supreme Court held that a plaintiff can shift the burden of proof to an employer to prove an affirmative defense if the plaintiff showed that protected characteristics, such as race or sex, "played a motivating part in an employment decision." In cases that involved "mixed motives," the employer would be liable unless it could prove that it would have made the same decision notwithstanding the protected trait. The U.S. Court of Appeals for the Sixth Circuit originally ruled that "direct evidence of discrimination was required to present a mixed-motive claim." However, in Desert Palace v. Costa , the U.S. Supreme Court held that mixed-motive claims could be brought based solely on circumstantial evidence. Allowing circumstantial evidence to prove mixed-motive claims could increase a plaintiff's chance at defeating an employer's defenses at the summary judgment stage. In a concurring opinion, the Sixth Circuit held that an employee raising a mixed-motive claim can defeat an employer's motion for summary judgment by presenting evidence, either direct or circumstantial, to demonstrate that a protected characteristic was a motivating factor for any employment practice, even though other factors also motivated the practice. (Wright v. Murray Guard, Inc.)
WORKPLACE HEALTH & SAFETY NEWS
Update on Senate Bill 7 Referendum. Senate Bill 7 (SB7) contains many provisions that will cut costs, increase revenue, and improve service for participants in Ohio's workers' compensation system. This was a negotiated bill that contains compromises by business, labor, and the BWC. A referendum challenges several provisions of SB7. If enough voter signatures are not collected by September 23 to put the referendum on the November 7 ballot, the sponsors of the referendum will have 10 days to gather additional signatures. If their efforts are unsuccessful, the referendum will not appear on the ballot. GH&R will closely monitor developments regarding the referendum.
Strategies for Controlling Your Premiums. Handicap reimbursement is a program to offset the costs caused by pre-existing conditions in employees you hire with handicaps. There are 25 recognized handicaps (e.g., epilepsy, arthritis, and tuberculosis) that the BWC recognizes for handicap reimbursements. Another way to control your premium is to pay salary continuation rather than temporary total disability compensation. By paying salary continuation, an employer can avoid the activation of reserves because of lost time. Finally, employers should consider lump sum settlements to control their premiums. The snap shot for computing premiums is December 31 for private employers. By executing settlements and having them approved by the BWC before the snap shot date, employers can eliminate the effect of the settled claims from their experience. For more information on these programs, please contact Dan Burke (513-629-2770) or Everett Greene (513-629-2824).
EMPLOYEE BENEFITS & EXECUTIVE COMPENSATION NEWS
403(b) Regulations Delayed. The IRS issued proposed regulations on 403(b) plans in 2004, which provided comprehensive guidance on statutory and administrative changes. The regulations were originally supposed to be effective for tax years beginning after 2005. The IRS recently announced that when final regulations are issued they will not be effective earlier than January 1, 2008.
PPA Restricts Underfunded Defined Benefit Plans. The Pension Protection Act of 2006 (PPA) includes the most comprehensive pension reform since the enactment of ERISA in 1974. Once the provisions become effective, defined benefit plans will no longer be funded with a view only toward long term adequacy. Instead, pension plans generally will be required to set a funding target of 100% of the present value of accrued benefits. The Act imposes restrictions that apply when a plan's ratio of assets to its funding target is below a specific threshold. If a plan's ratio is less than 80%, the plan cannot be amended to provide for any increase in benefit. If a plan's ratio is between 60% and 80%, lump sum payments are restricted to the lesser of 50% of the benefit or the present value of the PBGC guaranteed benefit. If the plan's ratio is under 60%, no lump sum distributions may be paid. Further, if a plan's adjusted funded ratio is less than 60%, benefit accruals must be frozen. Generally, these rules are effective beginning in 2008.
Funding of Deferred Compensation Prohibited when Pension Plans at Risk. The PPA also prohibits public companies from funding any deferred compensation plans for certain key executives and directors while its pension plan is "at-risk." A plan is considered "at-risk" if the ratio of the actuarial value of assets to the funding target is below 80% for the proceeding year or if such a ratio is below 70% for the proceeding year with the funding target determined using special at-risk actuarial assumptions. This prohibition applies to any assets that are actually transferred to a rabbi trust or otherwise set aside exclusively for the payment of deferred compensation. Any funding that violates the restriction will be immediately taxable and subject to a 20% penalty tax. Further, any tax "gross up" payments made to the executive or director to cover the tax penalties will be subject to the same 20% penalty tax.
This Newsletter is a periodic publication of Graydon Head & Ritchey LLP and should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult your own advisor concerning your situation and any specific legal question you may have.