Al Siebert, Ph.D. taught management psychology at Portland State University for more than 30 years. He is the Director of The Resiliency Center, a training and consulting firm that helps individuals, teams and organizations gain competitive advantage by developing resiliency skills, and he speaks to many groups about how to develop workforce resiliency. He is author of The Resiliency Advantage: Master Change, Thrive Under Pressure, and Bounce Back from Setbacks (Berrett-Koehler).

In today’s world of constant change, organizations must be resilient if they are to survive and remain viable. As Gary Hamel and Lissa Välikangas have said “The world is becoming turbulent faster than organizations are becoming resilient.... Resilience will prove to be the ultimate competitive advantage in the age of turbulence.” (The Harvard Business Review, September 2003.)

Non-stop change requires that personal and organizational resiliency be a declared objective. In the past, organizations needed workers who would follow their job descriptions and be good caretakers of existing systems. Now, however, organizations need highly resilient, change-proficient employees who can work effectively without detailed job descriptions.

Kaiser Permanente, for example, has been experiencing many on-going challenges in the ways that prescription drugs are provided to patients. In late March 2005, Kaiser Permanente in Southern California sent 95 pharmacy operations managers and supervisors to “Camp Resilience.” They devoted three days to learning how to strengthen their personal resiliency and develop “Leadership Skills for Creating a Resilient Workforce.”

The shift away from one kind of desired employee to a much different kind of employee is rough on many people. When groups of employees make lists of their challenges and difficulties, most of them report they feel pressured to do more work, of better quality, in less time, with fewer people, in new ways, with a reduced budget—while worrying if their jobs are safe.

Some people buckle under this pressure, but others do not. In fact, highly resilient people thrive under pressure, manage non-stop change easily, and bounce back from setbacks stronger and better.

In the past, individuals had to learn how to become resilient on their own. Now, for the first time, the new science of resiliency psychology is providing solid guidelines about ways to enhance workforce resiliency.

Developing a highly resilient workforce begins with understanding that we humans are born with an innate predisposition to learn how to be highly resilient. It’s an on-going, life-long process—resiliency is not an ability one either has or does not have. Further, it is important to understand that traditional training methods are not as effective for developing resiliency as is self-motivated learning.

Five levels of resiliency
How can CEOs and human resources professionals enhance workforce resiliency? By becoming knowledgeable about the five levels of resiliency, understanding how a person moves from one level to the next, being role models of resiliency themselves, and developing managers who enhance workforce resiliency without undercutting it.

Level One
At the most basic level, resilient people consciously and actively take care of their health and well-being. Employee wellness programs and a corporate culture of living a healthy lifestyle builds a strong foundation for resiliency—with one mental barrier to overcome. It is the myth of stress.

The widespread belief that people have stressful jobs is an artificial, “consensus reality.” Articles about job stress in newspapers and magazines, and workshops for employees on how to cope with stress, while well-intentioned, sustain an illusion that we are victims of something called “stress” that is constantly assaulting and harming us.

Dr. Hans Selye, the physician who conducted the pioneering research about “stress,” confessed in his memoirs that “biological stress” was not the term he should have used. He said he should have called his research findings the “strain syndrome.”

Workshops on job stress reduction can be more harmful than helpful and can lead to an increase in stress-disability claims. The distress a person may feel is not a result of what actually exists objectively in a job, it is a result of how the person perceives what is happening. Job stress cannot be objectively defined. What is too stressful for one person is not very stressful for another. Whether or not a person experiences health-harming stress at work depends upon the person’s perception of what is going on and the person’s resiliency skills. As you have seen many times in differences between two people with identical work assignments, it is not the circumstance that counts; rather it is each person’s reaction to it.

One consequence of false beliefs about stress is that many employees blame their working conditions for their feelings of distress and do not try to develop resiliency strengths. A person’s ability to hold up under pressure is strengthened when they understand that unpleasant strains experienced at work or in private life are their personal, subjective reactions.

What most people call “stress” is really their internal, physical feeling of anxiety or strain that they don’t like. This is not just semantics. Stress is an interpretation of an external event, strain is the internal effect. As psychologist Salvatore Maddi and his research team documented in their study at the Illinois Bell Telephone company in the 1980s, hardy people remain healthy and thrive during long periods of high pressure, disruptive change, because they commit themselves to coping well and exert control over their immediate challenges.

Add to this the recent research findings by psychologist Barbara Frederickson that positive emotions during the day broaden a person’s cognitive skills and strengthen resiliency. This includes enjoying one’s work, job satisfactions, and appreciation, as well as laughing and happy moments with co-workers. In contrast, negative feelings such as anxiety, anger, fear, vulnerability, and helplessness narrow cognitive functions and decrease resiliency.

Resiliency development action:
(1) Make wellness and healthy life-style programs a high priority. Replace stress reduction classes with sessions on how to develop strengths for coping with emotional strains.

(2) Allow and encourage employees to exert some control over what they do and when they do it. Put managers who micromanage on a performance improvement plan.

(3) Remove managers with poor people skills who try to motivate workers with fear and threats. Promote into management those who create good work team morale and a positive working atmosphere.

Level Two
Resiliency research shows that people who focus on solving the problems they encounter are much more resilient than people who disengage, feel helpless, or become highly emotional. Psychologist Richard Lazarus confirmed the connection between a problem-solving response and resiliency many times. Employees who use problem-focused coping in a constantly changing work environment are more resilient, have good relationships with others, and enjoy better health. The least resilient people do not problem solve. They focus on their unhappy feelings, believe their jobs are full of stress, have more illnesses, and blame managers for their distress.

Resiliency development action:
Psychologist Robert Sternberg and his colleagues found in their worldwide research in many cultures, that three kinds of intelligence determine success in life: they are—analytical, creative, and practical. This means that classes on how to think “out of the box” are not sufficient. Include how to problem solve in analytical, creative, and practical ways. Develop in-house examples of all three.

Level Three
Three mind-body dimensions affect an employee’s resiliency—strong self-confidence, healthy self-esteem, and a positive self-concept. These three core “selfs” function like gatekeepers to higher-level resiliency abilities. If the gatekeepers are weak, a person will not be very resilient. If they are strong and healthy, one can access and develop many fourth level resiliency strengths.

Resiliency development action:
Most coaches and trainers ignore the first word in the phrases “self-confidence,” “self-esteem,” and “self-concept.” Develop guidelines showing people how to write statements about their reliable strengths, feelings of self-appreciation, and thoughts about who they are. Structure performance evaluations with employees telling their manager what they’ve done well and feel proud about.

Level Four
People develop advanced resiliency skills through self-motivated, self-managed learning. These are the optimistic, self-confident folks who have childlike curiosity and playfulness. They keep learning from experience and become better and better at handling life’s challenges. In a workplace without up-to-date job descriptions, highly-resilient people are more effective than others because they interact with the action in ways that lead to things working well for everyone. They have mastered the art of allowing things to work well. They are the “go to” people when something essential must be done right.

Highly resilient people develop inner complexities that give them choices for responding. They can be both optimistic and pessimistic, trusting and cautious, serious and humorous, unselfish and selfish, and so forth. They trust their intuitions and “read” other people well.

Resiliency development action:
Leave highly resilient people alone to do what they believe is best. Coach managers to listen to resilient employees and use them as in-house consultants. Place managers who can’t deal with both optimistic and pessimistic thinking on a performance improvement plan.

Level Five
This is the talent for serendipity—the ability to convert what could be extreme misfortune into marvelous good fortune. People who function at this highest level are best suited for a world of non-stop change. They align quickly to new circumstances and steer through chaotic energies to reach good outcomes.

Resiliency development action:
After a rough challenge has been dealt with, hold a review session to determine why it was good that it happened. Make learning good lessons from bad experiences part of your organization’s culture.

Use available resources— involve your EAP
Resilient people look for and draw on resources available to them. The executive committee of the Employee Assistance Society of North America (EASNA) recently reworked the EASNA goals and mission to become proactive in providing resiliency information and resources to its members. Traditionally, EAPs have been reactive. They came into existence to provide outside help to employees needing professional help for coping with problems and difficulties affecting job performance. In 2004, however, many EAPs began to develop guidelines and materials on how to nurture resiliency in their client’s employees.

EAP professionals have the background for showing employees ways to cope with extreme pressure. Modern EAPs can help you educate workers about resiliency and can encourage employees to take an active approach toward improving their resiliency. When developing resiliency strengths in employees is a strategic, on-going, system-wide goal, rather than an isolated “flavor of the year” theme promoted by one department, then workforce resiliency will be strengthened.

Conclusion
Charles Darwin observed long ago that when an environment changes, it is not the strongest or most intelligent of a species that survives, it is the few who can adapt to the new environment. An empowering finding in the resiliency psychology research is that every human has an inborn predisposition to become resilient and can learn to handle non-stop change easily and naturally.

With this knowledge, CEOs and human resources professionals can help employees (and themselves) navigate through rough periods of change skillfully and easily. Today’s reality is that we live in constantly changing environments. Some organizations deny and resist the ongoing changes, others have declared resiliency as a strategic goal. Organizations that develop workforce resiliency have a major competitive advantage.

(Editor’s Note: For information about Al Siebert’s books, workshops or to invite him to speak, visit www.resiliencycenter.com. If your company needs an EAP provider, call Employers Group at (800) 748-8484 and ask for a Professional Services Manager.)

By Leslie Hollis,
Vice President of Consulting Services
Employers Group

While Cal/OSHA (California’s division of the Occupational Health & Safety Administration) never formally rings an employer’s doorbell, when they come-a-calling, most employers become frantic with apprehension. Does an inspection have to be an event that sends an employer to the medicine chest to treat an “Excedrin” headache? I should say not.

Knowing your rights and responsibilities as an employer, however, can certainly make the process a bit more palatable before, during and after an inspection—and make your workplace healthier and safer. Of course this translates into fewer citations, a win for you!

The inspection process
Usually an OSHA inspector will arrive during normal business hours unless there has been a special situation; i.e., death, serious injury or amputation that would prompt them to come after-hours. Usually the OSHA director in the area makes that call based upon the information provided to them at the time of the incident.

The OSHA representative should and must present his/her credentials upon arrival and request to meet personally with the owner of the business or the safety manager. While an employer reserves the right to defer the OSHA visit/inspection, keep in mind that if OSHA wants in badly enough, the OSHA representative will secure a warrant and return with that warrant in order to gain access. If the owner of the business is absent, the OSHA representative will attempt to contact that person and wait for a short period of time before conducting the inspection without him/her.

Prior to the inspector walking through the employer’s site, there is usually a briefing wherein the OSHA inspector explains what he/she is concerned about and therefore seeking to understand or observe during the inspection. If available, the inspector may even provide a copy of a formal complaint that may have prompted the inspection in the first place.

Impromptu inspections are usually made as a result of reports of imminent danger, fatalities or complaints. If an employee files/signs a complaint it is treated as a formal complaint and therefore OSHA is required to send out an inspector. Let’s not forget as employers, we may not retaliate against an active employee who notifies OSHA of a hazardous situation in the workplace.

What we must encourage is an open door policy that embraces employees and encourages them to come forward with ideas as to how to better promote health and safety in the workplace. This type of policy, clearly set forth in an employee handbook and practiced with integrity, may deter the employee from seeking external guidance in remedying a hazard, therefore making a team member out of an employee.

Scope of inspection
Employers are not required to permit the OSHA inspector to view all areas of the workplace. However, if an employer refuses access to a specific area, the OSHA inspector may be required to obtain an administrative subpoena for a return visit and inspection.

My suggestion is to offer the inspector a guided tour in the area(s) in which he/she has presented a complaint. If the inspector requests documentation or takes photographs, be sure to retain a copy of documents provided and photographs taken for your own records. Keep in mind that inspectors will usually ask to see your Injury & Illness Prevention Plan and perhaps your recordkeeping documents pertaining to Health & Safety Training.*

Following the formal inspection, the inspector will debrief the management team at that time, or later via teleconference, the apparent violations discovered during the inspection. If deemed necessary, the inspector will issue appropriate citations. Keep in mind, depending upon the severity of the infraction, that OSHA fines can start as low as $500 and for repeat violations, increase to as much as $70,000. Should an employer “fail to abate” a hazard, it can, in some cases, add up to as much as $15,000 per day.

Hazard abatement - “The Fix”
When the inspector issues a citation, he/she determines what a reasonable “abatement period” should be and provides the employer with a timeframe in which to remedy the discovered hazards. OSHA rarely offers more than thirty (30) days to make improvements because OSHA considers 30 days a sufficient timeframe in which to remedy hazards that could cause bodily harm to an employer’s most valued asset, his/her employees.

The employer’s obligation is to notify OSHA when the hazards have been formally abated. If the employer fails to contact OSHA at the close of the 30 days, you can expect that OSHA will be following up with you. OSHA can offer an extension in the hazard abatement process; however, the employer must be prepared to provide a rational argument as to why the extension is being requested and what steps are currently being taken to protect employees from injury/illness in the interim.

Of course if the employer disagrees with the citation, he/she can always write an appeal and OSHA will take under advisement the rationale behind the appeal. The OSHA Review Committee then becomes involved in reviewing what the inspector found during the site assessment, the employer’s information contained in the appeal, and formally rules on the appeal. The abatement period commences then, only after the commission has formally ruled. However, in cases of imminent danger, an appeal by the employer would NOT delay the need for immediate abatement.

My suggestion as a safety professional is for all California employers to get to know their local OSHA representatives. Utilize them as consultants even if in a telephonic capacity. It is far more beneficial for an OSHA representative to know of your business in a positive light prior to a claim being filed and requiring them to come out under more auspicious conditions.

*(Editor’s Note: If you are an employer in California without an Injury & Illness Prevention Plan and recordkeeping documents pertaining to Health & Safety Training, you can seek immediate assistance through our office to get started on these documents in order to be compliant. Call Employers Group at (800) 748-8484 and ask for Leslie Hollis or email her at lhollis@employersgroup.com.)

By Wendy Platt, CEBS,
Helpline Consultant

The three federal agencies (Departments of Labor, Health and Human Services, and Treasury) responsible for enforcing the Health Insurance Portability and Accountability Act of 1996 (HIPAA), have issued “final” HIPAA regulations. (See Federal Register issued December 30, 2004.) For the most part, the “final” regulations are similar to the interim regulations but clarify issues related to creditable coverage, preexisting conditions, special enrollments and excepted benefits. New health plans or health plans that are renewed on or after July 1, 2005, must comply with these “final” regulations. Let’s say, for example, that your plan runs on a calendar year (January through December), then your plan must be compliant beginning January 1, 2006.

Creditable coverage
Creditable coverage is health coverage that an individual had under a prior health plan. Prior creditable coverage may offset the exclusion period in a new group health plan with creditable coverage from a previous creditable plan. Health plans may request a Certificate of Creditable Coverage from individuals as proof of prior coverage; however, employers may not establish a time limit.

Creditable coverage limits or eliminates a break-in-coverage as long as the break-in-coverage is not longer than 63 days under federal law. However, in some cases California contracts may extend the break-in-coverage to 180 days provided the previous coverage was employer sponsored and the new coverage is also employer sponsored (California Insurance Code §10198.7 and California Health and Safety Code §1357.51).

A Certificate of Creditable Coverage (also called Certificate of Group Health Coverage)* (29 CFR 2590.701-5), must be provided automatically upon loss of coverage and as soon as possible when requested by employees or dependents who are, or who have been covered under the plan. When providing Certificates of Creditable Coverage, employers now must include an educational explanation of restrictions that the preexisting exclusion may impose, informing individuals of their rights to apply HIPAA portability (creditable coverage) when obtaining new health coverage.

Preexisting conditions
Under the old regulations, preexisting conditions were those conditions that were present before the first day of coverage under the health plan. The new regulations define a preexisting condition as, “… a condition present before the effective date of coverage under a group health plan or health insurance coverage.” The definition was changed to limit the use of preexisting condition exclusions when employers change health care providers.

HIPAA still limits a preexisting condition not to exceed 12 months, or in the case of late enrollees, 18 months. However, some states, including California, permit shorter time periods – 6 months and 12 months, respectively (California Insurance Code §10198.7 and California Health and Safety Code §1357.51).

Preexisting Condition Related Notices
The General Notice of Preexisting Condition Exclusion* (29 CFR 2590.701-3(c)), is applicable to any group health plan that contains a preexisting condition exclusion. This notice must be provided to an individual before a preexisting condition exclusion can be applied to that individual.

The Individual Notice of Preexisting Condition Exclusion* (29 CFR 2590.701-5(d)), applies to group health plans that contain a preexisting condition exclusion. This notice is provided only after receiving creditable coverage information from an individual that indicates that the creditable coverage from a previous health plan is not enough to offset the preexisting exclusion period for the new plan. This notice must be provided within a “reasonable time” (not defined) after the individual has presented evidence of creditable coverage.

Special enrollments
HIPAA provides special enrollments for employees and dependents under certain conditions. Special enrollments are a period of time when employers must permit individuals to enroll in the group health plan who did not enroll when they first became eligible or when certain events occur, such as when an individual becomes a dependent through birth, adoption, placement for adoption or marriage. In addition, individuals may enroll, and not be considered a late enrollee, if the individual declined coverage because they had other health coverage and later lost that coverage. Also participants are eligible for a special enrollment if they have coverage through a health maintenance organization (HMO), then move or work outside the HMO’s service area and then have no access to the HMO’s coverage.

All group health plans must provide the Notice of Special Enrollment Rights* (29 CFR 2590.701- 6(c)). This notice provides the description of the plans’ special enrollment requirements and must be provided to all employees, whether or not they enroll, on or before the individual is offered an opportunity to enroll in the plan.

Excepted benefits/limited scope benefits
Excepted benefits (benefits not covered) under HIPAA in all circumstances include, but are not limited to, AD&D, disability income coverage, liability coverage and workers’ compensation. Under certain conditions, flexible spending accounts (FSA’s) are considered excepted benefits. Excepted benefits are not subject to HIPAA; therefore Certificates of Creditable Coverage are not required. Limited scope benefits are excluded from HIPAA portability when they are provided under a separate rider, certificate or contract; that is, they are separate from and not an integral part of the group health plan. Because dental and vision are considered excepted benefits under these circumstances no Certificate of Creditable Coverage is required.

What employers should do
Many of the HIPAA changes will be made by the health carrier or by the HMO. However, employers do have the responsibility to ensure compliance and should take steps to ensure same, such as:

• Identify plans that are subject to the HIPAA portability rules and determine which are excepted benefits and/or limited scope benefits, not subject to the HIPAA portability rules.
• Identify the plan year for each plan going forward beginning July 1, 2005, and determine when each plan must be compliant.
• Contact insurance carriers and HMO’s to determine what their plans are for HIPAA compliance and when the changes will be implemented.
• Identify what you, the employer, must do to coordinate with the insurer/HMO to comply.
• Review state law regarding preexisting exclusions and breaks-in-coverage. (Some states, including California, have shorter preexisting exclusion periods and longer break-in-service periods than established under HIPAA.)
• Review, update and create forms as necessary, including the Certificate of Creditable Coverage, the General Notice of Preexisting Condition Exclusion, the Individual Notice of Preexisting Condition Exclusion and the Notice of Special Enrollment Rights and any applicable procedures. (Check with carriers/HMO’s as they may create and update these forms, being sure to review them.)
• Establish procedures for verification of participation in foreign government plans.
• Establish written procedures detailing how individuals may request Certificates of Creditable Coverage.
• Update plan documents, summary plan descriptions (SPD’s), notices, benefits summaries, employee handbooks, and forms – anything that references the HIPAA regulations.

Generally, self-funded plans must comply with the federal Employee Retirement Income Security Act (ERISA). This means that federal law (HIPAA) preempts state law, making state law unenforceable. However, HIPAA has granted states some discretion in some aspects of the portability provisions. These include: shortening the 12-month exclusionary period and providing a break-in-service longer than the federal 63 days, both of which have been adopted by California and can be implemented in California plans. Normally, these provisions would not apply to self-funded plans covered under ERISA.

HIPAA regulators are considering additional regulations that address breaks-in-coverage, Family and Medical Leave Act (FMLA) and special enrollments. At this time there has been no date established as to when these additional regulations will become final, if at all. Employers Group will continue to advise our members of changes and updates affecting HIPAA. Perhaps after these changes and updates, if implemented, we shall have the final regulations at last!

* Additional information regarding content guidelines for notices as well as notice models may be found at: www.dol.gov/ebsa/publications/healthlawsnotice.html.

IRS Permits Grace Period for Flexible Spending Arrangements

By Mimi Natividad Mericle, SPHR,
Helpline Consultant

The Internal Revenue Service (IRS) recently eased the use-it-or-lose-it rule for Section 125 cafeteria plans (see IRS Notice 2005-42), giving employers the option to provide workers with more time to spend flexible spending arrangement (FSA) funds. This is an obvious bonus for consumers (i.e. employees) and is beneficial for organizations as well. However employers currently face some unanswered questions in offering a grace period and might not welcome the opportunity for change as enthusiastically as their workers. Thus several factors should be examined to determine whether extending the spending deadline is an advantageous benefit modification that outweighs the potential challenges.

Background
A cafeteria plan allows employees to choose among two or more qualifying benefits, the amounts of which are not included in the participant’s gross income. Employers frequently include in their benefits menu FSA plans, which allow participants to be reimbursed on a pre-tax basis for qualifying out-of-pocket expenditures. A health FSA covers certain medical expenses (as defined by the IRS); a dependent care assistance FSA is also commonly offered.

Cafeteria plan elections, once made, can only be changed or withdrawn under limited circumstances as outlined in Treasury Regulation Section 1.125-4. A cafeteria plan must specify a plan year in the written plan document. Additionally, it may not include any benefit plan that defers the receipt of compensation or allows participants to use contributions made in one plan year for a benefit which will be provided in a following plan year. This restriction is often called the “use-it-or-lose-it” rule, since it prohibits deferred compensation and forces the forfeiture of any unused contributions or benefits at the end of the plan year.

Relaxing the “use-it-or-lose-it” rule
The recently released IRS Notice indicates, “…other areas of tax law provide that for a short, limited period, compensation for services paid in the year following the year in which the services that are being compensated were performed is not treated as ‘deferred compensation’.” The Notice also states, “Under (Treasury Regulation) … a plan... shall not be considered as deferring the receipt of compensation or benefits for more than a brief period of time after the end of the employer’s taxable year to the extent that compensation or benefits are received by the employee on or before the fifteenth day of the third calendar month after the end of the employer’s taxable year in which the services were rendered.”

Based on these considerations the Treasury Department and IRS have modified the use-it-or-lose-it rule, allowing for a brief extension of the spending deadline, which will not be considered a deferral of compensation.

Key provisions of IRS Notice 2005-42
The key provisions for adding a grace period for spending FSA funds are as follows.

• The extension period is optional.
• The deadline can be extended a maximum of two (2) months and 15 days; an employer may choose a shorter grace period, such as 30 days.
• The extension must apply to all cafeteria plan participants.
• During the grace period unused FSA funds may not be cashed out or converted to any other benefit. As an example, remaining amounts in a health FSA may not be transferred to a dependent care FSA.
• Unused FSA funds at the end of the grace period are forfeited.
• An employer may still provide a “run-out” period following the deadline extension, which allows employees to submit qualified expenses incurred during the plan year and grace period.
• The plan document must be amended to reflect the grace period.
• An employer may implement a deadline extension in the current plan year by amending the plan document before the end of the plan year.

Grace period is good for employees and employers
Health FSAs enhance consumer-driven spending. This helps both employees and employers to control and reduce health care costs, and the savings can be significant in the course of a plan year. Having more time to spend FSA funds is an additional benefit for workers, as it alleviates the year-end rush to spend unused dollars. For example (assuming a calendar plan year), a person with $25 in his health FSA in December may stock up on unneeded cold medicine to avoid losing the remaining balance. With the adoption of a grace period the same worker could wait to spend the unused balance on a more “legitimate” expense in the following year, such as a doctor visit or prescription co-pay.

The additional spending period could also be an effective tool for employers to raise participation rates, both in volume (number of participants) and dollars (increased contribution per employee). Workers who are hesitant to participate in a FSA plan because of the rigid use-it-or-lose-it rule will probably develop a higher comfort level with the addition of a grace period. Current participants who are more at ease with a FSA may increase their annual contributions. (Note: the employer sets the cap for a health FSA; federal law establishes the limit for the dependent care FSA.)

Clearly, a well-received and well-understood employee benefit is a boon for an organization and the key to increased participation and utilization. Employers should educate their workers about FSAs. Participation in these plans will grow if the grace period and tax advantages are properly communicated. With greater participation, amounts excludable from gross income will be boosted. As such, employers will realize even more savings in the reduction of employee income on which the organization pays taxes.

Pending legislation
The list of reimbursable expenses could be expanded by pending federal legislation, making a health FSA even more attractive.

• H.R. 1545 would permit expenses for certain meal replacement and dietary supplement products that qualify for FDA-approved health claims.
• H.R. 2486 would allow expenses for medical foods, foods for special dietary use or dietary supplements.

Employer considerations
While extending the deadline presents definite advantages, other considerations exist. At the time of this writing several aspects of the grace period remain unclear, as listed below.

• Will the adoption of a grace period apply to all benefits in a cafeteria plan (e.g. dependent care and health FSAs); or
• Can a grace period be offered for one benefit but not another?
• Will administration become burdensome for employers; or
• For organizations using a third party administrator (TPA), will legal complications arise between an employer and its TPA?
• How will a grace period impact an employer’s FSA obligations under COBRA and/or HIPAA?

Employers should review the Notice provisions and monitor the developments in this arena, as further guidance from the IRS is anticipated. Additionally human resources, benefits, accounting and payroll professionals should assess the ramifications on their areas of responsibility that an extended spending deadline will present.

(Editor’s Note: Please contact the Employers Group Helpline for more information on this recent rule change and how we can assist you in designing your organization’s employee benefit plans.)

By Wendy Taylor,
Editor and Legislative Coordinator

The California Legislature is out of session from July 15 to August 15. Since there is no legislative action at this time, we will report on the ballot measures that have been certified by Secretary of State Bruce McPherson for the Special Election on November 8.

The following information was gleaned from the Secretary of State’s Web site and explains the initiative process: “California uses the direct initiative process, which enables voters to bypass the Legislature and have an issue of concern put directly on the ballot for voter approval or rejection. There are two types of initiatives that can be placed on the ballot: 1) statute revision, which requires signatures equal to five percent of the total votes cast for Governor in the preceding gubernatorial election, and 2) constitutional amendment, which requires signatures equal to eight percent of the Governor’s total vote in the preceding gubernatorial election.”

Here are the seven initiatives that have qualified for the November election. (Note: We will provide a short summary on those that are applicable to California businesses.)

Proposition 73 - Termination of Minor’s Pregnancy. Waiting Period and Parental Notification. (Constitutional amendment)

Proposition 74 - Education
Public School Teachers. Waiting Period for Permanent Status. Dismissal.
Sponsored by Assemblywoman Bonnie Garcia. Extends from 2 to 5 years the number of years a public school teacher must have to receive tenure. School boards would be authorized to dismiss a tenured teacher who receives two consecutive unsatisfactory performance evaluations. (Statute revision)

Proposition 75 - Union Dues
“Paycheck Protection Act”: Public Employee Union Dues. Required Employee Consent for Political Contributions.
Sponsored by Lewis Uhler of the National Tax Limitation Committee. Requires unions to seek written approval of members to make political contributions on their behalf. (Statute revision)

Proposition 76 - Spending limit
“California Live Within Our Means Act’. School funding. State spending.
Limits State spending to prior year total plus revenue growth; revises Prop 98 by permitting suspension of minimum funding. Excludes above-minimum spending appropriations from schools’ funding base. Requires Governor to reduce State appropriations under specified conditions; continues prior year appropriations if new State Budget delayed. (Constitutional amendment)

Proposition 78 - Prescription Drugs, Discounts.
Known as “Cal Rx.” Establishes discount prescription drug program, overseen by Dept of Health Services; enables low and moderate income California residents to purchase prescription drugs at reduced prices; imposes $15 application fee, renewable annually; requires determination by Dept. of resident’s eligibility; DHS to contract with pharmacies to sell prescription drugs at agree-upon discounts negotiated in advance and to negotiate drug rebates with manufacturers. (Statute revision)

Proposition 79 - Prescription Drug Discounts. State-Negotiated Rebates.
“Cheaper Prescription Drugs for California Act.” Provides for prescription drug discounts for those qualifying on income, covers individual making less than $37,000 per year, or a family of 4 with less than $75,000 in income; funded by rebates from drug manufacturers, negotiated by DHS; at least 95% of rebates must be used for discounts. Prohibits Medi-Cal contracts with manufacturers that do not provide the Medicaid best price to the program except for drugs without a therapeutic equivalent; establishes an oversight board; makes prescription drug “profiteering” a crime. (Statute revision).

Proposition 80 - Electric Services Providers. Regulation.
Imposes restriction on direct access—allows existing deals to remain until contracts expire and permits renegotiation of new contracts when they expire; requires increase in renewable energy resources by 1% per year, to 20% by 2010; allows utilities to decide on a case-by-case basis whether it would be cheaper to build new plants themselves or buy power from someone else. (Statute revision)

Struck from the ballot (for now):
Proposition 77 - Reapportionment
“Redistricting Reform: Voter Empowerment Act.”
This proposition, initiated by Governor Schwarzenegger, was removed from the ballot by a court ruling in Sacramento Superior Court on July 21, but following an appeal, it may end up back on the ballot. The court case was brought by Attorney General Bill Lockyer because there were two versions of the initiative; one that came to his office during the initiative process, and a second version that was circulated to more than 950,000 voters who signed petitions to put it on the ballot. This proposition would implement a realignment of legislative districts.

Discrimination: Supreme Court Creates a New Cause of Action re Sexual Harassment

Jeffrey A. Berman is a partner in the international law firm of Sidley Austin Brown & Wood, where he chairs the West Coast labor and employment law practice. He is a long time member of the Employers Group Legal Committee and has served as the Chair of its Amicus Committee for well over a decade.

As it has done in almost every important labor and employment case decided by the California Supreme Court in the last two decades, one of the firms represented on the Employers Group Legal Committee filed an amicus brief in the Miller case in support of the employer. Below, Mr. Berman discusses the recent (July 18, 2005) decision in this case and how it will impact employers.

The main issue before the California Supreme Court in Miller v. Department of Corrections was whether the granting of favorable treatment by a male supervisor to a female employee with whom he was having a sexual affair constituted sexual harassment in violation of the Fair Employment and Housing Act (“FEHA”). According to the Court, the answer is: “it depends.”

This case was brought by two former employees of a California prison. They claimed that (1) their supervisor was having sexual relations with three of their co-employees, (2) the three relationships were well-known by other employees, (3) some of the sexual conduct took place in the work setting, and (4) these three employees received favorable treatment such as special assignments, promotions, and work privileges. The two plaintiffs also claimed that they were retaliated against when they complained about the favoritism.

The Supreme Court began by noting that neither a supervisor-subordinate sexual relationship, nor an isolated instance of favoritism on the part of the supervisor toward the subordinate constitutes sexual harassment in the absence of more bad behavior. However, relying largely on an EEOC Guidance, the Court concluded that “when such sexual favoritism in a workplace is sufficiently widespread it may create an actionable hostile work environment in which the demeaning message is conveyed to female employees that they are viewed by management as ‘sexual playthings’ or that the way required for women to get ahead in the workplace is by engaging in sexual conduct with their supervisors or the management.” According to the Court, this type of widespread sexual favoritism may be severe enough to alter an employee’s working conditions and create an unlawful hostile work environment.

The Court also concluded that, what has become known as “paramour discrimination” may occur in the absence of the existence of coercive sexual conduct directed at the plaintiff, or even in the absence of any conduct of a sexual nature at the workplace. It also cited to the conclusion in the EEOC Guidance that the creation of a widespread atmosphere demeaning to women may be actionable by both men and women.

Although the Court concluded that the mere presence of office gossip is insufficient to establish the existence of widespread sexual favoritism, the admissions of the nature of their relationships by the participants in this case, boasting by the favored women, eyewitness accounts of incidents of public fondling, repeated promotions despite lack of qualifications, and the like may be sufficient to create a cause of action.

In reaching its conclusion, the Court rejected the employer’s argument that a finding of sexual harassment under the circumstances would inject the courts into private, consensual relationships. According to the Court, it was not concerned about the relationship itself, but only upon its effect on the workplace.

The Court also found that the plaintiffs had adequately pled a claim that their former employer unlawfully retaliated against them for having complained about the sexual favoritism and otherwise opposing the hostile work environment. In so doing, the Supreme Court reversed the holding of the Court of Appeal that the plaintiffs were not complaining about sexual harassment, but only about “unfairness.” Although the plaintiffs did not identify that they believed the conduct constituted sexual harassment, the Court concluded that they were not required to elaborate on their underlying legal theory.

The Court held that, even if it ultimately was concluded that the employer’s conduct did not constitute unlawful harassment in violation of the FEHA, a reasonable mistake of law by the plaintiffs would not prevent them from proceeding with their retaliation claim. Lastly, the Court determined that the subjective belief of the plaintiffs could be inferred from the nature and content of their repeated complaints, and that their subjective good faith belief could not be resolved on summary judgment.

As a result of the decision in Miller, California employers should review their policies and practices regarding workplace dating. In doing so, they should keep in mind that involuntary sexual relationships, as well as relationships that initially were voluntary but subsequently become involuntary, may serve as the basis for a claim of sexual harassment.

What is Work/Life?

By Mark Nelson, J.D.,
Helpline Consultant

Work/life is an emerging field in HR that tasks companies to direct their focus on how HR policies and practices impact employees not just at work, but in their home lives as well. While not a radical concept, the notion of tracking an employee’s life outside the office is often overlooked – if not actively avoided – by HR professionals who follow the mantra that the less you know about an employee outside of the office the better.

Work/life does not posit that a supervisor be dispatched to the employee’s home with an invasive questionnaire, but rather that the company take accountability for insuring employees have every opportunity to achieve a balance between work and outside commitments, such as family, academic pursuits, etc.

For larger employers (particularly those in finance, insurance, and real estate), the notion of work/life is probably not a new one and the company may even have a full-time Work/Life Manager who does nothing but develop programs that advance the company’s commitment to balancing work and life outside the office. For smaller to medium-sized employers, the trend is more toward designating an individual in a position of authority who then heads up the company’s work/life program in addition to his or her normal job responsibilities.

Why implement a work/life program?
The benefits are numerous. Applicants and employees alike no longer compare only salaries when targeting employers or considering job offers. A competitive employee benefits program may tip the scale in your favor. Also, studies increasingly draw a connection between family-friendly HR policies and increased productivity.

Essentially, happy workers work harder. Moreover, work/life programs give employees options other than (1) calling in sick to take a “mental health day” or (2) utilizing family and medical leave job protections when the circumstances don’t require such a drastic measure but the employee perceives he or she has no other alternative (assuming, of course, the employee can obtain certification from a health care provider). It goes without saying that unscheduled absences cost the company far more than scheduled ones.

Finally, as stress is declared the culprit in more and more disabling medical conditions, employers who have little or no job flexibility may aggravate an employee’s poor health and could even trigger a work-related injury or illness, pushing up workers’ compensation premiums in the process.

What is work/life?
Essentially, it’s whatever HR can do, in a non-invasive way, to facilitate a better balance between the employee’s work and obligations outside of work. Typical examples include policies addressing: flexible scheduling; paid time off (in addition to vacation and sick leave); child care assistance; elder care assistance; family and medical leave (more than the legal mandates); tuition reimbursement; on-site dry cleaning, personal grooming services, ATMs, etc.; and personal services like financial planning and pre-paid legal services.

Employers who have joined the bandwagon are even conducting classes in time management and other educational programs that have applicability for employees’ home lives as well. The Center for Work & Family at Boston College is currently developing standards for assessing how a company’s work/life program measures up to the ideal.

The rise of work/life as a recognized discipline within HR should, by no means, lead to the conclusion that today’s workforce is lazy or ill-equipped to deal with the complexities of modern life. Statistics show that, on average, we work a month more than we did in 1970 and for the same standard of living we enjoyed in the 70s. Sadly, the more traditional models that factor out the notion that employees exist outside work are solving only half of the equation. And if the trend toward working more continues, employers who are unwilling to update their HR policies and practices can rest assured they will have no one to blame but themselves – and their HR department, of course.

(Editor’s Note: If you or company is interested in exploring work/life programs, please contact us at (800) 748-8484 and ask to speak to a Professional Services Manager.)

Conducting Internal Investigations

Allen Graves represents employers and employees in all aspects of employment law, including class actions, wrongful discharge, discrimination, harassment, retaliation, and wage/hour litigation. Prior to founding Graves & Associates, Allen was a member of the employment law department at Paul Hastings, Janofsky & Walker; the firm is a member of the EG Legal Committee.

Internal investigations are a great opportunity for the Human Resources professional. In a business culture that too often looks on HR as a mere cost center, there is nothing like a complaint of harassment or discrimination to make an entire company take notice of your work. With multi-million dollar verdicts routinely battering California employers, executives and other stakeholders who might otherwise overlook HR clearly focus on any investigation of claims that could end up in front of a jury.

Like most opportunities, the key to a good investigation is preparation. Thousands of pages have been devoted to the different policies and techniques that employers should consider in preparing for an investigation. Before delving into the research and training that is necessary to become an expert investigator, here are a few tips to keep in mind:

Have an investigation policy
In order to gather information without breaking the law, an employer must have policies in place that inform employees about possible searches and ensure that employees are treated fairly throughout the investigative process. Civil suits for invasion of privacy, discrimination, and even wrongful termination await the employer who attempts an investigation without the correct policies in hand.

Our first policy deals with employee privacy. California employees have a constitutional right to privacy, and that right is implicated by many parts of an investigation. Reading employee e-mails, listening to phone calls, or even searching an employee’s locker can violate privacy rights and expose an employer to liability. To avoid liability, the employer must control employee expectations of privacy. By telling employees ahead of time that things like phone calls, e-mails and lockers are all subject to search or monitoring, the employer can control privacy expectations. The employee has fair warning that communications at work are not private and the employer dramatically increases its ability to perform a thorough investigation.

Our second policy deals with employee cooperation. Nothing is more important to an effective investigation than witnesses who actively cooperate with interviews and requests for information. Unfortunately, employees find a variety of reasons not to cooperate. Everything from misplaced loyalty to a co-worker, to a fear of retaliation can lead employees to boycott a crucial investigation.

The solution is a policy that requires all employees to cooperate with investigations, or face discipline up to and including discharge. Although such policies may seem harsh to some, they can prove indispensable when the key witness in a sexual harassment claim decides that he or she “doesn’t want to get involved.”

Be consistent
Employers routinely face discrimination suits from employees who have been the subject of an investigation. In one case, an employee who was guilty of dealing drugs at the workplace brought suit because the employer chose not to investigate other employees who belonged to a different ethnic group and were accused of the same misconduct. Even though he was guilty, the employee argued that the investigation was racially motivated and therefore actionable. The key to avoiding claims like these is a policy that requires all investigations to be reviewed by an HR professional who is familiar with company investigations procedure. This person will evaluate each investigation to ensure that the employer allocates similar investigative resources in similar circumstances.

Train
Courts have specifically focused on the use of a trained investigator as part of a legally sound investigation. Before the need arises, an employer should consider the costs and benefits of training an in-house HR professional to function as an investigator. Training a current employee to function as an investigator can be substantially less costly that hiring outside consultants or attorneys when the need for an investigation arises. In-house investigators also have the advantage of being directly familiar with the company policies and culture.

Play fair
Giving an employee the feeling that he or she has been treated fairly is the best way to avoid litigation. Experience teaches that most lawsuits begin with an angry employee. Whether the underlying legal claim is valid or bogus, almost every lawsuit begins with an employee who is angry because he or she feels that the company acted unfairly.

Investigations are a particularly common source of conflict because they often involve emotionally charged situations. In harassment and discrimination cases, the accuser and the accused will both experience high levels of anxiety and hostility. No matter how hard we try to make create a professional environment, these investigations will always be very personal to the employees involved.

To minimize the risk that an investigation will send an angry employee running to his or her attorney, you should be constantly aware of the emotional impact of your actions as an investigator. Each investigation should be conducted not only to produce a fair result, but also to give every employee involved the feeling of fairness.

A few techniques that help in this area are: 1) Choosing an investigator who is perceived by both sides as impartial. 2) Consistently remind the accused and the accuser that the company is dedicated to a full and fair investigation. 3) Give every witness an opportunity to tell his or her story. Even if some of an individual’s statements are irrelevant, cutting off discussion will leave an employee feeling like his or her point was not considered.

Of course being thorough and fair will not always be enough to avoid litigation. Some employees are going to sue their employer regardless of the employer’s actions. Even when litigation is unavoidable, however, a thorough investigation is the cornerstone of a good defense. Given the litigation-prone environment in which California employers must operate, an effective investigation system can be critical to business success.

Wage/Hourly Trends

By Salvador Curiel,
Research Services Analyst

As we enter the middle of the summer season, we see many unemployed Americans trying to fill the few job openings that are still left. The market for nonexempt employees usually increases at this time of the year with high school graduates and seasonal workers in the service sector entering the workforce. Now, the situation is more difficult for job seekers due in part to the temporary layoffs in the automotive industry.

For those that are fortunately employed, we see that their wages are increasing at a faster rate since the economy started picking up again. Data from the Bureau of Labor Statistics and EG’s Regional Wage (Nonexempt) Survey indicate that wages are gradually increasing in both California and the nation.

According to the two sources, hourly earnings have been slowly increasing since dropping after 2003. The nationwide average wage increase has gone from 2.2 percent in 2004 to 2.7 percent this year, while in California wages have increased from 1.3% in 2004 to 1.9%. This is a good sign that companies are willing to pay more to employees since dropping off after 2003. It shows that businesses are improving since the recession and, hopefully, continue to do so in the coming years.

Focusing on the California increases for 2005, the areas that increased significantly were those classified as General Classifications and Administrative / Secretarial Services. The average for auto mechanics, janitors and other general positions increased by 8.18% from 2004 and the average increase for secretaries was 7.88%. General Office employees saw an average increase of 3.14%, which includes positions such as general clerks and receptionists. The classification that is slowly recovering from the recession is in production. After seeing increases of 5.86% and 6.01% in 2002 and 2003, respectively, the averages dropped to 0.36% in 2004 and 0.26% this year. It looks like production employees are not benefiting from the economic recovery with wages remaining steady and layoffs, such as those in the car industry.

Annual changes are just another part of the Regional Wage (Nonexempt) Survey. The percent difference between last year’s and this year’s weighted average for each job surveyed are listed to help users examine patterns of change. The survey covers 183 classifications in the areas mentioned above along with nine other sub-groupings. If your firm would like to purchase the survey or would like to ask questions about this survey contact me at (800) 748-8484 or by email at surveys@employersgroup.com.