United States: Employment Law Commentary-September 2004

Shortly before he left office in 2003, former Governor Gray Davis signed the California Domestic Partner Rights and Responsibilities Act of 2003 (often referred to by its legislative designation, "AB 205"). Although California has long been a leader in extending legal protections to same-sex couples, AB 205 is the state’s most comprehensive statement yet, essentially eliminating most distinctions between registered domestic partners and married, opposite-sex couples for purposes of California law. ¹Expanding upon prior laws — most notably AB 25, enacted on October 14, 2001 — AB 205 will become effective on January 1, 2005.

In addition to AB 205, on a separate but somewhat parallel track (keeping in mind that domestic partnership is not marriage, but an alternative), two states (Massachusetts and Vermont) and several municipalities (notably, the City of San Francisco) have recognized or attempted to recognize marriages ² or civil unions between same-sex couples. Taken together, these developments pose a number of challenges for California employers, particularly those with operations in Massachusetts or Vermont. This article discusses some of those challenges, with a particular emphasis on their employment and employee benefits implications. ³

In contrast to prior California legislation in this area, ⁴ AB 205 focuses its attention on the California Family Code. It amends the Family Code to provide that registered domestic partners will have the same rights and responsibilities as spouses, including access to family court for dissolution of domestic partnerships, inheritance rights, and child support obligations^5. In addition, public agencies in California will be required to treat domestic partners as equivalent to spouses for employee benefits purposes under AB 205 ⁶ and extend the same nondiscrimination rights to registered domestic partners as are available to opposite-sex spouses. ⁷ The legislation also standardizes the eligibility requirements and the procedures for registering and dissolving a domestic partnership. ⁸ However, it does not require nongovernmental employers to offer equal employee benefits to domestic partners and spouses, nor does it mandate preferential treatment of registered domestic partners in connection with the terms and conditions on which they are employed. ⁹ Only domestic partners who avail themselves of the specified registration procedures are covered by AB 205. ¹⁰

At this point, AB 205 is short on details and long on promises in the employment arena. As a result, employers should be cautious in determining the application of AB 205 to their employees. Among its other provisions, AB 205 does contain the following specific protections for employees with registered domestic partners:

Public employers are prevented from discriminating against any person or couple because the person is a registered domestic partner; and

Registered domestic partners have the same rights regarding nondiscrimination as those provided to spouses.

In addition, AB 205’s broad language raises several other potential issues for employers that have yet to be answered. Examples include:

AB 205 only amends California law, not federal law. Because of this, AB 205 may create a conflict between the Family Medical Leave Act ("FMLA") and the California Family Rights Act ("CFRA") as they apply to spouses and domestic partners. When the provisions of both FMLA and CFRA apply, leaves run concurrently and may be simultaneously counted against the employee’s entitlement under both laws. However, when an employee takes leave that is recognized only under one of the two laws, only that law governs the leave rights and obligations, and the leave is charged to that law only. AB 205 will extend all benefits under CFRA to domestic partners, but the FMLA does not provide for any right for leave to care for the serious illness of a domestic partner. Thus, an employee who takes CFRA leave to care for a domestic partner will also be able to take FMLA leave for another qualifying event (e.g., to care for a parent or child with a serious health condition), while an employee who takes leave to care for a sick spouse will have to exhaust both CFRA and FMLA leave. Thus, in some instances, a domestic partner will arguably be able to take up to 24 weeks of leave, while a spouse will only be eligible for 12 weeks.

AB 205 almost certainly requires public employers to extend the same retirement, welfare, and survivor benefits as those provided to a spouse.

As noted above, AB 205 extends the nondiscrimination provisions currently available under California law to spouses to registered domestic partners as well. However, AB 205 does not extend to federal nondiscrimination laws such as Title VII of the Civil Rights Act, the Age Discrimination in Employment Act, and the Americans with Disabilities Act. As with FMLA and CFRA, AB 205 introduces another distinction between California and federal nondiscrimination law of which employers should be aware.

Although the definitions and procedures set forth in AB 205 are quite similar to those currently in effect under AB 25 — and may therefore already be incorporated into existing domestic partner policies — employers that have adopted policies that are more tailored to their individual business needs may now wish to revisit this issue. At a minimum, employers should review their domestic partner policies to determine whether they are consistent with the definitions and registration and dissolution procedures set forth in AB 205.

Another administrative issue that AB 205 highlights is the verification of domestic partnership status. The benefits and protections extended by AB 205 are only available to domestic partners who register with the California Secretary of State. Many employers already require domestic partners to provide affidavits, certificates, or other documentation of their status before they become eligible for domestic partner benefits, and California law expressly authorizes insurance carriers and health maintenance organizations to collect such information (or to require employer-policyholders to collect this information on their behalf). ¹¹ Most employers do not require spouses to provide copies of their marriage licenses as a precondition of benefits eligibility, however. The prohibition against discrimination incorporated into AB 205 may conflict with existing domestic partner policies and law on this point. ¹² Pending the final resolution of this conflict, employers are arguably entitled to continue their existing practices, although they may instead choose to rely on existing plan and insurance policy provisions to seek recovery from any unregistered domestic partners who obtain benefits.

As these examples indicate, the areas where employers may encounter problems from AB 205 are only likely to grow in the future. Accordingly, the easiest way for an employer to ensure compliance with the provisions of AB 205 at this point is to revise any policy that provides for spousal benefits to now include the same benefits for an employee’s registered domestic partner.

The majority of employee benefit programs maintained by private employers are governed by the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ERISA broadly preempts state attempts to regulate the operation of employee benefits, and as a result, it is unlikely that AB 205 will require employers to modify their benefit plans to provide additional rights or benefits to registered domestic partners. ¹³ However, AB 205 does raise a number of important questions for employers, particularly in light of the federal Defense of Marriage Act ("DOMA"). ¹⁴

Adopted in 1996, DOMA provides that, for purposes of interpreting and applying federal law, the term "marriage" means a "legal union between one man and one woman as husband and wife," and the term "spouse" refers only to "a person of the opposite sex who is a husband or a wife." In addition, DOMA provides that no state is required to give effect to a marriage or marriage-equivalent between same-sex couples that is recognized under the laws of another state. However, DOMA does not generally preclude states or employers from recognizing or providing benefits and protections to domestic partners. Indeed, since benefits under ERISA-governed employee benefit plans are provided by employers, and not the federal government, DOMA arguably does not apply to these plans.

DOMA limits the tax benefits available to domestic partners under the Internal Revenue Code, many of which are only available to "spouses" or "dependents," ¹⁵ but its interaction with ERISA is more limited. Rather than requiring or prohibiting coverage of domestic partners under ERISA-governed employee benefit plans, DOMA instead shifts the focus to the terms of the plans themselves: if the terms of the plan document provide for domestic partner coverage (whether expressly or arguably), ERISA — rather than DOMA — mandates that the coverage be extended. Whether registered domestic partnerships, civil unions, or same-sex marriages are at issue, the key to determining the administrative consequences will lie in the plan documents.

Employers should carefully review their plan documents and domestic partner policies in light of AB 205. Most benefit plan issues relating to same-sex marriages turn on the manner in which a plan defines the terms "marriage" and "spouse." Under many benefit plans, a participant’s "spouse" is an individual to whom he or she is legally married under applicable state law. For states like Massachusetts and Vermont (and, until recently, California) where same-sex couples can arguably refer to themselves as "married," imprecision in defining which individuals will be treated as spouses can lead to unintended consequences. ¹⁶ If the relevant term does not clearly exclude same-sex spouses or domestic partners and the employer’s intent is to impose such an exclusion, the employer should amend its plans to clarify the definition, or offer all benefits on an equivalent basis to same- and opposite-sex spouses, to avoid the risk of litigation over this issue.

AB 205 establishes community property rights for property acquired during a domestic partnership. It is unclear whether domestic partners may be entitled to a qualified domestic relations order ("QDRO"), which is an order dividing retirement plan benefits held by an employee pursuant to a dissolution of the relationship, or whether ERISA preempts the application of AB 205 to retirement plans. ¹⁷ In addition, both the Internal Revenue Code and ERISA provide for spousal death benefits in some circumstances. These specific provisions are probably not directly affected by AB 205, but employers may choose to amend their retirement plans to provide comparable benefits to registered domestic partners.

COBRA ¹⁸ requires group health plans that cover 20 or more employees to make healthcare continuation coverage available to employees, their spouses, and dependent children in various specified circumstances when it would otherwise end. California has enacted a similar law that is applicable to fully-insured health plans and HMOs covering from 2 to 19 employees ("Cal-COBRA"). ¹⁹ Same-sex marriages and domestic partnerships can complicate the administration of these requirements if health plan documents are not clearly drafted to indicate which, if any, continuation benefits will be made available. COBRA indicates that "spouses" of covered employees are eligible to continue their health care following a qualifying event, but includes no specific definition of that term. Under DOMA (and ERISA, which likely preempts the direct application of AB 205 to health plans), a spouse is an individual who is legally married to a covered employee of the opposite sex. Thus, AB 205 will probably not extend COBRA coverage to registered domestic partners, but employers may choose to offer COBRA-like benefits through their health plans and domestic partner benefit policies.

For the smaller health plans to which Cal-COBRA applies, insurance carriers and HMOs are obligated to treat registered domestic partners and spouses in an identical manner for coverage purposes. Thus, registered domestic partners who experience qualifying events under Cal-COBRA will be entitled to 36 months of continuation coverage. However, "extended" Cal-COBRA coverage under AB 1401 ²⁰ applies by its terms to both large and small fully-insured health plans, and the manner in which ERISA, DOMA, AB 205, and Cal-COBRA will interact in this context is unclear. For large health plans, extended Cal-COBRA coverage is available only to individuals who have exhausted their COBRA continuation rights. As noted above, registered domestic partners have no entitlement to COBRA coverage and may therefore have no way to access the extended Cal-COBRA coverage insurance carriers and HMOs are obligated to provide even if their employers otherwise offer COBRA-like continuation benefits.

The portability provisions of the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") provide special health plan enrollment rights to "spouses" and "dependents." These rights allow the enrollment of eligible individuals outside a health plan’s annual open enrollment period. DOMA effectively limits these rights where the individual at issue is a same-sex spouse or domestic partner. However, because HIPAA confers special enrollment rights for "dependents" as well, a nonemployee domestic partner who qualifies as a dependent may also be entitled to these rights.

Cafeteria plans (also known as flexible benefit plans) are primarily governed by federal law. As a result of the Internal Revenue Service’s application of DOMA, events affecting registered domestic partners will not qualify as "change in status events" permitting changes to participant contribution and coverage elections under cafeteria plans. Employers are not free to adopt more liberal provisions in this context. Moreover, reimbursements under such plans for nondependent domestic partners cannot be permitted.

Although the Internal Revenue Code obligates employers providing employee benefits to a nondependent domestic partner to value those benefits and report them as additional income to the employee domestic partner, there is no similar requirement under California’s tax laws. ²¹

Employers must also be aware of the need to track coverage elections relating to domestic partners. Although AB 205 alters the tax implications of domestic partner benefits under California law, it does not affect existing IRS rules regarding the taxability of domestic partner benefits under the Code. Employers should ensure that their computer systems and communication materials and enrollment forms are designed to elicit sufficient information to allow them to track and report contributions made to purchase domestic partner benefits.

As is often the case with new legislation, AB 205 poses many practical questions for California employers and highlights the difficult and as-yet unresolved legal and social issues surrounding domestic partnerships and same-sex marriages at both the state and the national levels. Employers would be well advised to monitor developments in this area closely, particularly as the California Supreme Court ultimately turns its attention to the constitutionality of Proposition 22 (which defines marriage as between a man and a woman) in cases subsequent to the Lockyer case.

*****************************

After two weeks of trial, nine witnesses, and thousands of pages of exhibits, the jury returned a unanimous defense verdict in favor of our client on all four claims asserted by the plaintiff.

The plaintiff was employed by our client as a biologist. She was terminated due to performance deficiencies. The plaintiff, however, asserted she was terminated because she threatened to report patient safety concerns to the FDA. The plaintiff also claimed she was terminated due to her gender, paid less due to her gender, and harassed based on her gender.

After deliberating for all of 23 minutes, the jury confirmed our belief that the plaintiff’s claims had absolutely no merit.

The trial team was led by San Diego partner Rick Bergstrom.

*****************************

By Ann Bevitt

On 1 October 2004 a new compulsory system for resolving workplace disputes comes into force in the United Kingdom. The major features of this system are:

• Mandatory disciplinary and dismissal procedures. If an employer fails to follow these procedures, a dismissal will be automatically unfair.

• Mandatory grievance procedures. If an employee does not invoke these procedures, he/she will be prevented from presenting a claim in the employment tribunal.

• If either an employer or an employee fails to follow or invoke the relevant procedure, tribunal awards will be increased or reduced accordingly.

There are two types of disciplinary and dismissal procedures: the standard and the modified. The standard procedure should be used unless there is very serious gross misconduct, in which case the modified procedure should be used. The procedures are not hard to follow, and most existing company disciplinary and dismissal procedures will already be fully compliant. However, the significance of these procedures is that if the employer gets any aspect of the procedure wrong, the employee will be able to claim automatic unfair dismissal and increased compensation. Further, employers will need to follow these procedures before dismissing an employee, whatever the reason for dismissal. The procedures will therefore apply in some cases where the employer might currently not follow the company disciplinary and dismissal procedures. For example, the procedures will apply to dismissals pursuant to the expiry of a fixed-term contract and dismissals on grounds of retirement.

The new grievance procedures are intended to reduce the number of tribunal claims by encouraging employees to use their employers’ internal grievance procedure. They achieve this by banning employees from bringing claims unless they have lodged a formal grievance with their employer, or ex-employer if they have been dismissed. The procedures apply where the employee has a grievance which is defined as a complaint by an employee about action that his employer has taken or is contemplating taking in relation to him. The procedures do not apply if the grievance is that the employer is taking disciplinary action against the employee, unless the employee alleges that the decision to take such action is on the grounds of the employee’s sex, race, disability, religious belief, or sexual orientation. Again, there are two types of procedure: the standard and the modified. The standard procedure should be used in the vast majority of cases.

Although, at first sight, the new procedures may appear straightforward, their application and effect on, and interplay with, existing unfair dismissal law are likely to cause employers some difficulties. As well as reviewing existing policies and procedures to ensure that they are fully compliant, employers should train HR staff and managers on the changes to ensure that they handle all disciplinary action, dismissals, and grievances correctly.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved