July Updates in Labor and Employment Law

By Caitlin Andersen - Seaton Peters & Revnew

July 16, 2018

Employment Agreements Can Alter the At-Will Employment Status

In Ayala v. CyberPower Systems (USA), Inc., 891 F.3d 1074 (2018), the United States Court of Appeals for the Eighth Circuit held, under Minnesota law, that an employee’s compensation agreement did not alter the general presumption of at-will employment status. CyberPower Systems employed Daniel Ayala (“Ayala”) as an at-will employee. After six years of employment, Ayala accepted a new position with the company, and the parties entered into a new agreement, titled, “Compensation Agreement,” that outlined Ayala’s salary and bonus structure under the new position. The agreement stated it was to “remain in place until sales reached $150 million USD.” Additionally, under the employment terms section, the agreement stated, “[t]he above mentioned agreement outlines the new salary and bonus structure to remain in place until $150 million USD is reached. It is not a multiyear commitment or employment contract for either party.”

After CyberPower terminated Ayala, before sales reached $150 million, Ayala sued, for wrongful termination claiming the agreement altered the at-will employment presumption and CyberPower breached the agreement by terminating him prior to sales reaching $150 million. The court disagreed, and found that the compensation agreement, specifically the title and content, did not express Cyberpower’s clear intention to alter the at-will employment status.

This case serves as a reminder for employers when entering into employment agreements (however titled) with employees to clearly state the agreement pertains only to an employee’s compensation and not the employee’s employment status. The agreement should avoid discussing any terms outside of compensation that pertain to other employment terms.  Additionally, employers may want to pay attention to the title of agreements, as the court in Ayala v. CyberPower Systems (USA), Inc. took into consideration the title of the document.

IRS Continues to Issue Employer Mandate Penalty Letters

The IRS began issuing Affordable Care Act employer mandate penalties, formally known as Employer Shared Responsibility Payments (ESRP), for the 2015 calendar year back in January 2018, and is currently still issuing penalties. The IRS notifies employers of the ESRP through Letter 226-J. Upon receiving letter 226-J, employers have 30 days to respond.

After receiving the employer’s response, the IRS will send the employer Letter 227, acknowledging the response and indicating the outcome of the IRS’s review. There are five different versions of the Letter 227 an employer may receive. Depending on the version, employers may have to submit an additional response. If the employer agreed to the penalty amount (Letter 227-J), or if the penalty amount was reduced to zero (Letter 227-k), no response is required and the case is deemed closed. If the amount was revised (Letter 227-L), or if the amount did not change (Letter 227-M), the employer must respond by either agreeing to the amount, requesting a meeting, or appealing the determination. If an employer appeals the determination, after the IRS makes a decision on the appeal, the employer will receive Letter 227-N containing the IRS’s final decision and the final penalty amount. Upon receipt of Letter 227-N the case is deemed closed and no further response is required.

It is important to address IRS penalty letters as soon as they arrive. If an employer does not timely respond, the IRS may finalize the penalty amount. For more information, or to view answers to common questions, visit https://www.irs.gov/individuals/understanding-your-letter-227.

Minneapolis Begins Issuing Fines for Sick and Safe Time Violations

The Minneapolis Sick and Safe Time Ordinance went into effect July 1, 2017. During the first year of enforcement, the city did not issue fines for violations of the ordinance, except in cases of retaliation. Instead, the focus was on education and outreach using mechanisms such as warnings and mediation. However, as of July 1, 2018, the city will be issuing fines for violations of the ordinance. The most common complaints filed with the city last year concerned violations of notice and positing requirements. To avoid fines, Employers should make sure to display the city’s notice poster, which includes the notice of sick and safe time, as well as the Minneapolis minimum wage requirements. Employers that provide an employee handbook must also include in the handbook the poster or another notice of rights and remedies available under the ordinance. Additionally, employers should review policies for compliance with accrual rates and usage of sick and safe time.

President Trump’s Supreme Court Nominee

Justice Kennedy announced his retirement from the bench as of July 31, 2018, after thirty years on the United States Supreme Court. Justice Kennedy’s retirement gives President Trump his second opportunity to appoint a Supreme Court nominee. On July 9, 2018, the President selected one of Justice Kennedy’s former clerks, Judge Brett M. Kavanaugh as his nominee. Since 2006, Judge Kavanaugh has served on the United States Court of Appeals for the District of Columbia Circuit, after his nomination by President George W. Bush. Prior to his nomination to the Court of Appeals, Judge Kavanaugh worked as a senior official in President George W. Bush’s White House. As midterm elections are approaching, Judge Kavanaugh’s confirmation is expected to be contentious between the divided Senate.