Ruling Roundup

New rulings have been issued on COBRA election notices, overtime, and the FICA taxation of government agencies.

COBRA election notices. The Consolidated Omnibus Reconciliation Act (COBRA; 29 USC 1166(a)(4)(A)) requires the administrators of covered group health plans to notify terminated employees that they have the option of continuing their benefits after the termination of their employment. 29 USC 1166(a)(4)(A) does not specify what steps should be taken to notify the plan participant. In Crotty v. Dakotacare, CA8, 455 F.3d 828, 8/1/06, the Court of Appeals for the Eighth Circuit said that a good faith attempt to comply with a reasonable interpretation of the statute is sufficient. The Eighth Circuit has now ruled in Hearst v. Progressive Foam Technologies, Inc., CA8, Dkt. No. 10-1253, 6/8/11, that a third party administrator made a good faith attempt to notify a terminated employee about the opportunity to temporarily continue COBRA coverage, even though the employee claimed that he never received the notice. The plan administrator had provided evidence that the election notice was mailed to the employee on May 3, 2007, as indicated by the post office's stamp on the administrator's mailing manifest, which was applied after the post office clerk verified that the envelope addressed to the employee was in fact mailed and that the name and the address on the envelope matched the name and address on the manifest.

In issuing its ruling, the Eighth Circuit said that merely claiming that the notice was never received did not, by itself, create a genuine dispute about any material issue of fact. The issue was not whether the employee received the notice, but rather whether the plan administrator “sent the notice by means reasonably calculated to reach the recipient.”

Overtime. The U.S. Court of Appeals for the Ninth Circuit has ruled that house parents of homes for emotionally disturbed children were not eligible for overtime, because none of the homes they were working in qualified as an “institution primarily engaged in the care of the sick, the aged, mentally ill or defective” under 29 USC 203(r)(2)(A) of the Fair Labor Standards Act (FLSA). Institutions covered under 29 USC 203(r)(2)(A) must provide overtime to employees who work over 40 hours per week [Probert v. Family Centered Services of Alaska, Inc., CA9, Dkt. No. 09-35703, 6/23/11].

The children in the homes attended local public schools and participated in other activities outside of the homes. The children received group therapy in the homes, but most of their medical and psychological treatment was provided outside of the homes. The house parents were not licensed medical or social service professionals.

The Ninth Circuit did not believe that the homes were “primarily engaged” in providing “care,” as that term is used in 29 USC 203(r)(2)(A). The court reasoned that since the children did not primarily receive their medical and psychological treatment on the premises, the “homes” were primarily a residence for the children.

The court also did not believe that the homes qualified as an “institution.” The Oxford English Dictionary defines an institution as “an establishment, organization, or association, instituted for the promotion of some object, esp. one of public or general utility, religious, charitable, educational, etc., e.g. a church, school, college, hospital, asylum, reformatory, mission, or the like.”

The court also rejected the house parents' argument that the homes were similar to nursing homes. The Department of Labor, Wage and Hour Division, Field Operations Handbook states that nursing homes may also include “rest homes, convalescent homes, homes for the elderly and infirm, and the like.” A nursing home may be able to qualify as an institution under 29 USC 203(r)(2)(A). The court said that the homes did not qualify as nursing homes because the children left the homes to attend school, participate in activities, and receive medical and psychological treatment. Residents of nursing homes are not necessarily confined completely to those facilities, but the expectation is that the vast majority of their time is spent there. In addition, nursing home facilities are staffed with professionals, not simply house parents, and residents may be expected to receive substantially greater “care” in those facilities.

FICA taxation of government agencies. The IRS has issued a Chief Counsel Advice (CCA) that says that for purposes of the Social Security wage base (currently, $106,800), branches, departments, and agencies of the federal government are considered to be one employer. However, agencies are not required to coordinate with other agencies to insure that the agencies together do not exceed the maximum Social Security wage base. Employees who have too much Social Security tax withheld will get the money back when they file their personal income tax returns. Employers who overpaid FICA taxes must follow the procedures used by other employers to correct the error (i.e., credit the overpayment to another return, or file a refund claim) [Chief Counsel Advice 201125015].