For the first time, the U.S. Equal Employment Opportunity Commission (EEOC) is suing private employers on behalf of employees alleging sexual orientation discrimination. On March 1, 2016, the EEOC issued a press release announcing it has filed its first two sexual orientation lawsuits alleging violations of Title VII of the Civil Rights Act of 1964 (Title VII).
In June 2015, the US Supreme Court ruled in Obergefell v. Hodges that same-sex couples may exercise the right to marry in all states and that states may not refuse to recognize a lawful same-sex marriage performed in another state based on the marriage’s same-sex character. Practical Law asked McDermott lawyers Todd Solomon and Jacob Mattinson to discuss the implications of the Obergefell ruling for employers.
On February 23, 2015, the U.S. Department of Labor (DOL) Wage and Hour Division published its final rule regarding the definition of “spouse” under the Family and Medical Leave Act (FMLA). Specifically, the rule recognizes all lawful same-sex spouses for purposes of FMLA leave, regardless of the couple’s state of residence. This final rule takes effect on March 27, 2015.
The FMLA permits eligible employees to take unpaid leave to care for a spouse with a serious health condition. Under the final rule, the DOL adopts the “state of celebration” rule in determining who is considered a spouse for these purposes. Accordingly, an eligible employee who has married a same-sex spouse in any state is permitted to take advantage of spousal FMLA leave, regardless of whether the couple resides in a state where same-sex marriage is recognized. The DOL previously adopted a “state of residence” rule for purposes of the FMLA, meaning an employee could take advantage of FMLA leave to care for a same-sex spouse only if the couple resided in a state where same-sex marriage is recognized. The “state of celebration” rule is consistent with the approaches adopted by the DOL and the Internal Revenue Service for purposes of other laws governing employee benefits.
Employers must review and revise their FMLA leave policies in light of this new definition to ensure spousal FMLA leave is extended to same-sex couples residing in all states beginning March 27, 2015.
On March 14, 2014, the Department of Health and Human Services (HHS) Centers for Medicare & Medicaid Services (CMS) released guidance clarifying the final regulations implementing Section 2702 of the Public Health Service Act (PHSA). PHSA Section 2702 addresses guaranteed availability of coverage. Pursuant to that section, health insurance issuers offering non-grandfathered health insurance coverage in the group or individual market, including coverage under a state or federal Marketplace Exchange, must accept every employer and individual in the state that applies for the coverage, subject to limited exceptions. PHSA Section 2702 and the related regulations prohibit discriminatory marketing practices, including discrimination based on sexual orientation.
The new CMS guidance clarifies that health insurance issuers offering non-grandfathered group or individual health insurance coverage must offer coverage on the same terms and conditions to same-sex spouses that is offered to opposite-sex spouses. Prior to this guidance, this requirement to extend coverage to same-sex spouses already applied in states that perform and recognize same-sex marriage. The new CMS guidance clarifies, however, that all insurance companies in all states are required to make such coverage available.
Importantly, the CMS guidance does not require private sector employers to offer coverage to same-sex spouses. Instead, the guidance requires an insurance company offering non-grandfathered health insurance coverage to offer private employers the option to cover same-sex spouses.
Employers will continue to have discretion—subject to other non-discrimination laws—regarding whether or not to offer coverage to same-sex spouses. For example, employers with self-insured plans are not subject to the new CMS guidance. Likewise, employers sponsoring fully-insured plans that are funded by insurance contracts issued in states that do not currently recognize same-sex marriage also are not necessarily required to offer coverage to same-sex spouses; they must simply be offered the opportunity by the insurance company.
Thus, while the CMS guidance ensures that health insurance coverage will always be available to employers that wish to offer coverage to same-sex spouses, it does not ensure that all same-sex spouses will receive coverage under employer plans. The CMS guidance clarifies that while health insurance issuers are encouraged to offer coverage to same-sex spouses in 2014, all issuers must fully comply for plan or policy years beginning on or after January 1, 2015.
Next Steps for Employers
Employers with insured group health plans should review their policies to determine whether existing spousal coverage is required to be extended to same-sex spouses. Plans insured under a contract issued in a state where same-sex marriage is legal already must extend existing spousal coverage to same-sex spouses. Employers with insured plans issued in states where same-sex marriage is not legal must have the option of extending coverage to same-sex spouses beginning on or after January 1, 2015.
Employers offering either insurer or self-insured plans may also wish to consider whether other nondiscrimination laws implicate the decision whether to offer same-sex coverage.
Employers extending benefit coverage to employees’ same-sex spouses and partners should review their payroll procedures to ensure that such coverages are properly taxed for federal income and FICA tax purposes. Employers also should review the options in Notice 2013-61 and consider filing claims for refunds or adjustments of FICA overpayments.
To read the full article, click here.
Many employers have begun the process of evaluating their options and obligations with respect to extending benefit coverage under employer-sponsored benefit plans to same-sex spouses in light of the U.S. Supreme Court’s recent ruling on Section 3 of the Defense of Marriage Act. Section 3 of DOMA provided that for all purposes of federal law the word “marriage” meant “only a legal union between one man and one woman as husband and wife,” and the word “spouse” referred “only to a person of the opposite-sex who is a husband or wife.” In June 2013, the Supreme Court ruled in United States v. Windsor that Section 3 of DOMA was an unconstitutional “deprivation of the liberty of the person protected by the Fifth Amendment.” The effect of this ruling is that federal law now generally will defer to state law definitions of marriage, including same-sex marriage, which has been legalized in 13 states and the District of Columbia.
As part of evaluating options for extending benefit coverage to same-sex spouses, employers need to consider the financial implications of such benefits. These implications include costs the employer will incur in extending such benefits, as well as the financial impact on employees who opt to utilize such benefits. Many of these costs are dependent upon the spousal benefits the employer currently offers, although the relevant considerations and cost estimates outlined below may be helpful resources.
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Recent guidance issued by the U.S. Department of the Treasury, the Internal Revenue Service (IRS) and the Employee Benefits Security Administration (EBSA) division of the U.S. Department of Labor (DOL) provides some initial clarifications on how U.S. v. Windsor will affect benefits for same-sex spouses. The guidance provides that same-sex couples legally married in a jurisdiction with laws authorizing same-sex marriage will be treated as married for federal tax purposes, regardless of whether the couple resides in a state where same-sex marriage is recognized.
To read the full article, click here.
In Internal Revenue Service (IRS) Revenue Ruling 2013-17, the U.S. Department of the Treasury and the IRS today ruled that legally married same-sex couples will be treated as married for federal tax purposes. Importantly, the ruling applies regardless of whether the couple lives in a jurisdiction that does not recognize same-sex marriage. In other words, the Treasury Department and IRS have adopted a “state of celebration” rule rather than a “state of residence” rule. Click here for IRS answers to some frequently asked questions.
As a result, it will be possible for same-sex couples to be what we call “federally-recognized same-sex spouses” even if they are not treated as married in the state in which they currently reside. That situation in fact, could become extremely common if same-sex couples travel to a jurisdiction solely to get married and obtain federal tax recognition of their marriage. (See the Obergefell case, discussed in “Two Federal Courts Recognize Same-Sex Spousal Rights for Residents of States Not Permitting Same-Sex Marriage” as one recent example.)
This situation will require employers in all states – not just the 13 states (and the District of Columbia) that currently permit same-sex marriage – to prepare for same-sex couples to request spousal benefits under the employer’s various benefit programs, particularly those programs where preferential spousal treatment is required by federal law (e.g., spousal protection under qualified retirement plans, special enrollment and COBRA rights under health and welfare plans, etc.) The IRS intends to issue further guidance on the retroactive implications of this position.
Additionally, this new guidance will allow same-sex spouses to claim refunds for open tax years for income and employment taxes they paid on imputed income on the value of health coverage. Similarly, there is a procedure for employers to obtain employment tax refunds based on coverage provided to employees’ same-sex spouses.
Finally, note that the IRS guidance does not apply to registered domestic partners, civil unions or other similar relationships recognized under state law but that are not denominated as marriage under that state’s law.
Further McDermott guidance on this important development will be forthcoming shortly. In the meantime, please contact the authors or your regular McDermott attorney if you have questions.
by Joseph S. Adams, Todd A. Solomon and Jacob Mattinson
Obergefell v. Kasich and Cozen O’Connor v. Tobits may reflect a growing trend of courts and other bodies to recognize same-sex marriages validly celebrated elsewhere even if the couple’s current state of residence does not recognize such marriages. Pending further guidance, employers should begin discussing plan amendments and administrative procedures that may be necessary to clarify benefit eligibility for same-sex spouses and partners.
To read the full article, click here.
by Todd A. Solomon, Ruth Wimer and Brian J. Tiemann
Employers providing benefits for employees’ same-sex spouses may want to consider the availability of federal payroll tax refunds if the Supreme Court of the United States finds Section 3 of the Defense of Marriage Act (DOMA) unconstitutional. Employers currently must impute income to an employee for the fair market value of benefit coverage for a non-dependent same-sex spouse. Such imputed income is subject to federal income and payroll taxes, as well as state income taxes in the majority of states.
To read the full article, click here.
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