AIM Business Insider

Court Decisions Leave Companies Treading Carefully with Employees

Separate rulings this week from the United States Supreme Court and the Massachusetts Supreme Judicial Court will significantly limit the actions that employers may take when addressing conflicts with employees.

The U.S. Supreme Court ruled unanimously on Monday that an employee who was terminated shortly after his fiancée filed a discrimination charge against their mutual employer may sue under Title VII of the Civil Rights Act of 1964 for third-party retaliation.

In Massachusetts, the Supreme Judicial Court ruled on Tuesday that a company may not dock a worker’s pay after unilaterally determining that the worker was responsible for damaging property.

The decision about third-party retaliation came in Thompson vs. North American Stainless LP. Eric Thompson and his fiancée, Miriam Regalado, were employees of North American Stainless, LP (NAS).  Three weeks after Regalado filed a sex discrimination charge against NAS with the Equal Employment Opportunity Commission (EEOC), the company fired Thompson.  Thompson filed suit against NAS under Title VII claiming that the company fired him to retaliate against Regalado for filing her EEOC charge. 

The Supreme Court ruled that “injuring [Thompson] was the employer's intended means of harming Regalado…In those circumstances, we think Thompson well within the zone of interests sought to be protected by Title VII.”

According to the Court, Title VII’s anti-retaliation provision covers conduct that “might have dissuaded a reasonable worker from making or supporting a charge of discrimination.”  The Court unanimously concluded that it is “obvious that a reasonable worker might be dissuaded from engaging in protected activity if she knew that her fiancé would be fired.” 

Bu the Court refused to identify a class of relationships for which third-party retaliation would be unlawful. So while this decision will likely result in more lawsuits being filed by spouses and significant others, the Court’s reluctance to define “zone of interests,” makes the practical implications of the decision somewhat difficult to predict.

For now, employers should tread carefully before terminating a spouse or close relative of an employee who filed a discrimination charge or lawsuit.  Employers should also re-examine policies and procedures for dealing with internal complaints in an effort to minimize the risk of a retaliation complaint.

According to EEOC statistics, retaliation became the most frequently cited form of on-the-job discrimination in 2009 (33,613 charges), overtaking race discrimination (33,579 charges) by a slim margin.  Given this decision, those numbers are likely to increase further. 

The Massachusetts ruling came in the case of ABC Disposal Service Inc., a New Bedford-based trash and recycling pickup company that wanted to cut down on damage by their workers to the company trucks and other people’s property.

The company instituted a policy saying that if it determined that an employee was at fault, the workers could either agree to pay for the damage through a deduction from their wages or be disciplined. The company said that the program led to a substantial reduction in damage. But the SJC said that under the Massachusetts Wage Act, employers are prohibited from making such deductions.

“The statutory language and the interplay of §§148 and 150 of the Wage Act reflect that employee deduction agreements of the type at issue in this case constitute special contracts that §148 prohibits unless the deductions are valid setoffs for clear and established debts within the meaning of §150,” Judge Margot Botsford wrote for the SJC.

Stay tuned to the HR Edge and the AIM Business Insider blog for additional detailed information and updates. 

Limited Networks Give Employers a Tool to Control Health Costs

Employers seeking to control health-insurance premiums (and that’s just about all of them) have a new tool at their disposal as they negotiate plan renewals for 2011.

The health cost control law signed by Governor Deval Patrick in August requires Massachusetts health plans to offer at least one limited or tiered network product that is at least 12 percent less expensive than a comparable full-network offering.  That means employers and their workers can reduce costs and preserve benefits by doing business with community hospitals and other facilities that deliver verifiably cost-effective health care.

The requirement takes effect on January 1.

Health plans are still awaiting final regulations on limited network products from the Massachusetts Division of Insurance. But several carriers already have such plans on the market and others have them well along on the drawing board, so it’s a good time to begin the conversation with your health-plan representative.

“Limited networks give employers the opportunity to control health care expenses that have in some cases been rising as much as 20 percent to 40 percent per year,” said Richard C. Lord, President and Chief Executive Officer of AIM.

“These networks also allow both employers and their workers to find excellent medical care, not just expensive medical care.”

The limited network provision was part of a cost-control bill intended to provide relief to rate-shocked employers while policymakers, health care providers and business representatives hammer out long-term solutions to the problem. The law also limits the ability of subscribers to jump on and off health plans repeatedly; prohibits anti-competitive contracts between providers and insurers; and establishes a pilot program on bundled payments, creating building blocks on the way to payment reform. 

The idea behind limited networks is simple – find quality medical care at reasonable prices. That means avoiding high-cost providers for procedures that can be performed just as well in lower-cost, community settings.

Limited networks are particularly promising for Massachusetts because of the gaping rate disparity among doctors and hospitals within commonwealth.  The attorney general's office issued a report this year concluding that the primary driver of health costs is the variation in rates that certain hospitals and physician groups are able to charge relative to their peers.  The report states:

"Price variations are not correlated to (1) quality of care, (2) the sickness or complexity of the populations being served, (3) the extent to which a provider is responsible for a large portion of patients on Medicare or Medicaid, or (4) whether a provider is an academic teaching or medical facility. Moreover, (5) price variations are not adequately explained by differences in hospital costs of delivering similar services at similar facilities . . . Price variations are correlated to market leverage as measured by the relative market position of the hospital or provider group compared with other hospitals or provider groups within a geographic region or within a group of academic medical centers." 

Pat Hughes, President and CEO of Fallon Community Health Plan in Worcester, wrote recently in the Boston Business Journal that the key for employers is to find the right limited network. Hughes said employers should look for a few important ingredients:

• A full spectrum of providers, including acute care hospitals, primary care physicians, specialists and other services;
• Multispecialty group practices that use electronic medical records;
• Community hospitals that have demonstrated through objective clinical data the capacity to deliver high-quality care and good outcomes at reasonable costs;
• A mechanism that allows patients to visit a doctor or hospital outside the network for a second opinion or a procedure that is not available within the network.

Employers must become part of the solution to rising health care costs by taking proactive steps like purchasing a limited/tiered network product.  As the purchasers of health insurance, they hold huge potential to change the marketplace and need to start flexing a little muscle.

Looming Unemployment Tax Increase Points to Need for Reform

The Massachusetts unemployment insurance system is creaking under the weight of a persistently weak economy and employers are about to pay the bill - a 40 percent average increase in UI rates as of January 1, 2011.

AIM has initiated discussions with the Patrick Administration about moderating the $258-per-employee increase while continuing to ensure benefits for people who have lost their jobs. 

At the same time, AIM believes the funding problems underscore a need for long-term, structural reforms to the most generous unemployment system in the country. Massachusetts is the only state, for example, to provide 30 weeks of jobless benefits at the standard benefit amount.

“The projected increases in contribution rates are worse than they need to be because Massachusetts maintains an unemployment insurance system that is out of the mainstream compared to the rest of the 49 states,” said Richard C. Lord, President and Chief Executive Officer of AIM.

“Without structural reform, the wild swings in the Unemployment Insurance Trust Fund will continue to impede creation of the very jobs we so desperately need to put people back to work.”

Projections from the Massachusetts Division of Unemployment Assistance show that the Unemployment Insurance Trust Fund, which ran a balance of more than $2 billion prior to the recession, is currently down to $236 million and will begin 2011 some $302 million in the red. That deficit would trigger a move to the highest rate schedule permitted under Massachusetts law, raising the average UI cost per employee from the current $646 to $904.

A move to schedule G would increase total contributions from Massachusetts employers from $1.576 billion to $2.235 billion. Employers also face a potential increase in the recently doubled $33.60-per-employee tax they pay to fund health benefits for jobless people.

Average UI rates paid by Massachusetts employers increased by $111 per employee this year after Governor Deval Patrick and the Legislature headed off a much larger jump by freezing the system at Schedule E. The rate freeze still produced increased costs because of deteriorating experience ratings as employers reduced payrolls in the wake of the sluggish economy.

State projections show the UI system breaking even in 2012 and posting surpluses of $752 million in 2013 and $1.672 billion in 2014.

On the issue of UI reform, AIM has testified repeatedly and consistently in favor of changes that include:

• Reforming the statutory rates for UI by lowering rates for those companies who do not lay-off employees and providing much needed relief for those companies;
• Increasing the number of weeks of work for eligibility to collect UI benefits from 15 weeks to 20, as well as requiring earnings for eligibility over two quarters, bringing Massachusetts into line with the majority of other states and saving the UI system an estimated $30 million;
• Changing the statutory trigger mechanism, reducing the maximum duration of benefit weeks to 26 when the state's economy is performing well, from 5.1 percent unemployment in each of the 10 local labor market areas in the state to a straight 5.1 percent unemployment rate statewide. (Reducing the maximum duration of benefits from 30 to 26 weeks saves the UI trust fund between $50 and $90 million per year and would bring Massachusetts into sync with all other states);
• Requiring the UI contribution rate of new employers to be set at the so-called zero positive rate, more accurately reflecting their actual contribution status;
• Changing the method of computation for taxes - Massachusetts is one of only three states that determine UI taxes based upon only the prior 12 months of payroll. Forty-seven states use payroll paid for the past three to five years. The current Massachusetts system is simply poor tax policy since it creates an incentive to decrease, not to increase payroll. The Massachusetts UI tax system represents economic stimulus in reverse.

Health Cost Issue Reaches Tipping Point for Massachusetts Employers

The cost of providing health insurance to workers has reached the tipping point for employers, according to a new survey by Associated Industries of Massachusetts (AIM).

Ninety-seven percent of 523 employers who took part in the 2010 AIM Employer Issues Survey identified the cost of health insurance as a matter of “great” or “moderate” concern. Health costs were also the most common response when employers were asked generally to name the problems that keep them awake at night.

Health issues easily outdistanced state taxes (83 percent great or moderate concern), energy costs and unemployment insurance costs (both 77 percent) on the list of concerns among employers already struggling in the face of a persistent economic slowdown.

“Health insurance has been a concern for employers for years, but the issue appears to have reached the crisis stage long predicted by economists and other experts,” said Richard C. Lord, President and Chief Executive officer of AIM.

“The numbers are staggering and the responses are passionate. At a time when the federal government has embarked upon health reform, it’s clear that we’re heading for an economic catastrophe if leaders in government, health care and business do not address the cost issue now.”

Employer comments about rising health insurance premiums underscore the fact the issue has emotional as well as financial consequences.

“Premium increases absolutely affect our company, but my biggest concern is for our employees,” wrote one employer.

“Year after year we offer them plan choices with reduced coverages/high deductibles/high co-pays with an expectation of reduced premiums, yet the opposite happens. The cost of health insurance is out of control. As an HR person I'm upset by this and I think I have a better understanding of the entire process. I can't even imagine how our employees feel.”

AIM conducts the Issues Survey every two years to identify the employer priorities that will make up its public policy agenda.

The debate over health costs ignited into a firestorm this year as small employers confronted insurance premium increases of up to 40 percent. Four years after Massachusetts employers supported the commonwealth’s landmark health insurance reform, those same employers told policymakers that the Massachusetts health care market is unsustainable without fundamental changes to the way companies and consumers purchase medical services.

AIM took the lead in seeking health care cost control for employers in March by proposing an amendment on Beacon Hill that would have temporarily limited reimbursements to some doctors and hospitals and required health plans to offer low-cost plans with reduced networks of providers. The Patrick administration, meanwhile, rejected scores of proposed rate increases submitted by health insurers before eventually reaching settlements with those companies.

The Legislature eventually passed, and Governor Deval Patrick signed, a cost-control bill that represented a first step toward creating relief for businesses while policymakers, medical providers, insurers and employers develop long-term solutions to a problem that continues to threaten the state economy.

“That will be at the top of my agenda next session, and I expect a strong commitment from everyone. Long-term reform is an absolute necessity for the future stability of health care and our economy,” Senate President Therese Murray said.

Employers who responded to the AIM survey recognize the complexity of addressing the economic underpinnings of the health-care system.

“It has to be health care, both the current costs and the fact that the administration seems overly concerned with the coverage issue and not enough attention is being devoted to developing solutions to the underlying problem that it costs too much to deliver average health care,” an employer wrote.

“I believe the federal government addressed some real issues with the health care reform, especially around the coverage issues, but the question remains as to whether or not they have a true understanding of how much it will cost and how it will be funded.”

Beyond state and local taxes, energy costs and unemployment insurance, the survey indicates that employers remain concerned about workers compensation insurance costs, the quality of public education and the availability of qualified workers.

Employers who did not point to health costs as the issue that keeps them awake nights instead got insomnia from economic problems - such as lack of access to credit and the construction slump -  and broader concerns such as government encroachment on the ability of entrepreneurs to create new businesses and jobs.

Federal issues are also on employer radar screens. Survey participants expressed concern about proposed cap-and-trade climate change legislation, off-balance accounting for Social Security liabilities and expansion of the federal bureaucracy in conjunction with health care and financial services reform.

 

House Seeks Improvement to Fair-Share Health Reform Calculation

The Massachusetts House of Representatives last week addressed one of the most common employer frustrations with the 2006 health reform law by passing a measure that would remove employees who carry insurance through a spouse or other source from the "fair-share" take-up rate calculation.

The amendment to the House's budget plan for Fiscal Year 2011 represents a victory for employers concerned about being penalized for offering insurance to people who already have access to health care. The measure now moves to the state Senate.

As part of the Massachusetts health care reform law passed in 2006, employers that are "non-offering" are required to make a fair share contribution toward the cost of caring for the uninsured. The goal is to spread the cost of covering uninsured people, since  employers who do offer insurance already contribute to health care for the uninsured through a surcharge on every bill for health care services.

The law requires a company with more than 11, but fewer than 50, full time equivalents (FTE) to:

• offer health insurance to its employees and have at least 25 percent of those employees participate in the company health plan; or
• offer to cover at least 33 percent of the cost of an individual plan, regardless of how many employees actually take it.

Employers with more than 50 FTEs must meet both prongs of the test, with some exceptions.

The requirement that 25 percent of employees accept a company's insurance coverage has been a source of frustration for employers because the rule makes no provision for workers already covered by a spouse's plan, a parent's plan, a veteran's plan, Medicare, Medicaid, or a plan due to a disability or retirement.  A 55-employee company, for example, at which 10 workers join the company health plan and 45 workers have insurance from other sources would fail the fair share test and pay an assessment. The House amendment would exclude the 45 workers from the take-up calculation.

The Patrick Administration has in recent years expanded the number companies subject to the fair share contribution and the Division of Unemployment Insurance Assistance has become aggressive in auditing companies.  The stepped-up activity has prompted employers to give lawmakers an earful about the fair share process.

Several employers testified recently before the Legislature's Small Business and Economic Development Committee about how one-sided the process is for them and what a headache they face in trying to comply with the law.  The two committee chairs, Senator Michael O. Moore and Representative Linda Dorcena Forry, heard the complaints and have expressed support for the fair share changes contained in the House amendment.

The amendment "will ensure that businesses, which are making legitimate health care offers to their employees, are not unfairly penalized by employing persons who already have health care. We're hopeful that the Senate will take similar action when they complete their budget in two weeks," Representative Forry wrote on her blog.

AIM agrees and urges the Senate to approve the same amendment.

Be sure to visit the AIM Online Health Insurance Resource Center for more information about health reform, managing health insurance costs and an upcoming series of seminars on the interaction of federal and state reform laws.

Massachusetts Misses Out on Federal Education Funding - For Now

Massachusetts will not receive funding in the first round of federal Race to the Top (RTTT) school reform grants, U.S. Secretary of Education Arne Duncan announced today.  Only two states, Tennessee and Delaware, were funded.   Applications for the second round are due June 1.

Massachusetts was on the list of 16 finalists announced earlier this month.  The final selection was made on a non-political basis using a scoring system that measured state track records in education reform as well as new proposals for use of the RTTT funds to improve assessment standards, personnel policies, data systems, and processes to turn around low-achieving schools.  Massachusetts stands to receive funding in the $250 million range if it eventually qualifies. About half of the grant will flow directly to local school districts, with the balance to be allocated in support of various statewide initiatives.

Education reform is an issue of immense importance to the employer community in Massachusetts because our competitiveness is based on the high quality of our workforce.  Massachusetts students lead the nation in performance on the National Assessment of Educational Progress (NAEP), but are less outstanding on international comparisons. And these results are marred by large achievements gaps between subgroups of students.

AIM, together with the Massachusetts Business Alliance for Education and other organizations, supported a strong state application to the RTTT competition.  Members of AIM's Public Affairs Council and staff met with state Secretary of Education Paul Reville and Commissioner of Elementary and Secondary Education Mitchell Chester and their staffs during the application process.  We supported legislation initially filed by Governor Patrick to raise the cap on charter schools and strengthen state intervention in chronically underperforming public schools - requirements for RTTT –-that passed the Legislature in January over fierce opposition from teachers' unions.

Although the federal dollars would certainly help Massachusetts to press forward with school reform is a time of fiscal constraint, we believe that the state's planning effort, and the legislation enacted as part of the application effort, have value in themselves.  We expect that our strong record of reform, combined with a somewhat more aggressive proposal for improvement, will make Massachusetts a strong contender in the second round of awards.

AIM's Public Affairs Council will host a meeting with Commissioner Chester on Thursday to discuss the RTTT and other economic stimulus funding for K-12 Education.  There are significant opportunities to advance education reform despite the RTTT setback. There is also an important role for business in shaping a more competitive application for the round two RTTT deadline June 1.

Please contact Candace Kydd at AIM if you would like to attend Thursday's meeting.