House Passes Arbitration & Retirement Legislation

The US House of Representatives has passed legislation that would end mandatory arbitration agreements in employment and other disputes. The House of Representatives also has passed retirement reform legislation that is designed to provide additional retirement security to employees. Due to the increase in inflation, the IRS has announced that the health savings accounts limits will be increased by 5.5% in 2023. The Department of Labor prevailed in a misclassification case against a medical staffing agency.

House Passes Bill to End Mandatory Arbitration – The House of Representatives passed a bill (H.R. 963) that would amend the Federal Arbitration Act to provide that pre-dispute arbitration agreements would not be valid. A pre-dispute arbitration agreement requires the arbitration of a dispute that has not yet arisen. The Forced Arbitration Injustice Repeal Act or FAIR Act was introduced by Representative Henry Johnson (D-GA) and would apply to employment, consumer, antitrust or civil rights disputes. In 2018, the Economic Policy Institute estimated that 56% of private sector nonunion employees or 60 million workers were subject to mandatory employment arbitration procedures. The bill needs to be considered by the Senate where a companion bill (S. 505) has been introduced by Senator Richard Blumenthal (D-CT) and has 39 cosponsors. President Biden recently signed legislation (P.L. 117-90) that would ban the use of forced arbitration in cases of sexual harassment and sexual assault.

House Passes Retirement Reform Legislation – The House of Representatives has passed the Securing a Strong Retirement Act of 2022 (H.R. 2954) which was introduced by Representative Richard Neal (D-MA), the chairman of the Committee on Ways and Means. This is a bipartisan bill that passed by a vote of 414 – 5. The bill includes several provisions affecting retirement plans including:

• Requiring newly established Section 401(k) and Section 403(b) plans to automatically enroll participants. The percentage of compensation contributed to the plan must be at least 3% in the first year and increase by 1% until reaching at least 10%.
• The age on which the required minimum distributions, which used to be 70.5 years of age and was previously increased to 72 would be increased over time to age 75 for those who attain age 74 after 12/31/31.
• The catch-up contributions that are permitted by older employees to Section 401(k), Section 403(b), and Section 457(b) plans would be increased for those who have reached the ages of 62, 63, or 64. The additional catch-up contributions could be a maximum of $10,000 per year, which would be indexed for inflation beginning in 2023.
• Employers would be allowed to match employee student loan payments with a contribution to the employee’s retirement plan. For the student loan payment to qualify, the employee must certify to the employer making the matching contribution that the loan payment has been made.

The legislation has been referred for consideration by the United States Senate.

2023 HSA Contribution Limits Increased – The Internal Revenue Service (IRS) announced in Revenue Procedure 2022-24 that the contribution limits for health savings accounts (HSA) will be increased in 2023 by 5.5% to reflect inflation. The annual limits for an individual under a high deductible health plan will be $3,850 and for an individual with family coverage under a high deductible health plan, the limit will be $7,750. This is an increase over 2022 when the annual limits were $3,650 for individuals and $7,300 for family coverage. The IRS defines a high deductible health plan as those with annual deductibles not less than $1,500 for self-only coverage or $3,000 for family coverage with annual out-of-pocket expenses that do not exceed $7,500 for self-only coverage or $15,000 for family coverage.

DOL Wins Misclassification Case – The US Department of Labor prevailed in a case, Martin Walsh, Secretary of Labor v. Medical Staffing of America, in which the US District Court for the Eastern District of Virginia ordered a medical staffing agency to pay more than $7.2 million in back pay and liquidated damages to 1,105 nursing aides, licensed practical nurses and registered nurses who were improperly classified as independent contractors. “When employers misclassify employees as independent contractors and fail to pay workers their hard-earned wages, the U.S. Department of Labor will hold them legally accountable,” said U.S. Secretary of Labor Marty Walsh.

The defendant in the case is a nursing registry that refers individuals for jobs when it receives staffing requests. Those who are hired for jobs received straight time pay irrespective of how many hours they worked during a workweek. The defendant classified the nurses as independent contractors and paid them whenever they accepted a nursing assignment at a facility of one of its clients. The defendant retains a percentage of the hourly rate charged to facilities as revenue.

In 2018, after concluding an investigation, the Department of Labor advised the defendant that its pay practices violated the Fair Labor Standards Act (FLSA). The District Court noted that there is a six-factor test to determine whether an individual is an employee or independent contractor. The test is designed to determine the economic realities between the worker and the alleged employer.

The District Court concluded that the evidence shows that the defendant exercised extensive control over the nurses' manner of work, and therefore, employ the nurses under the FLSA. The defendants controlled the scheduling of work and assigning workers to facilities. The defendant also paid for training and covered them under its malpractice and workers compensation insurance. The defendant set the wages, was responsible for paying the nurses, and kept track of the hours that were worked. The defendant also supervised and where appropriate disciplined the nurses. The District Court found that “defendants have extensive control over the nurses' manner of work, a level of control that far exceeds the administrative functions in which a registry may engage without creating an employment relationship with the caregivers on its registry.”

Neil Reichenberg is the former executive director of the International Public Management Association for Human Resources. He is an attorney, a frequent writer and speaker on public policy and human resource issues, and an adjunct faculty member at George Mason University. For questions or additional information, contact Reichenberg at neilreichenberg@yahoo.com.