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August 2017

Congress is unlikely to pass tax reform legislation this year...

Despite their brave talk over the past few weeks, the likelihood that President Trump and congressional Republicans will be able to push through a tax reform bill this year remains slim at best.

Prior to leaving for their month-long August recess, GOP leaders proclaimed that they would be free to zero in on tax legislation when they return in September and pass a major bill by December. But there are several potential roadblocks to those plans.

First, Obamacare has not gone away. President Trump’s suggestion that he might stop the federal government’s subsidies to insurance companies has alarmed even some Republicans in Congress. Senators Lamar Alexander, R-TN, and Patti Murray, D-WA, the chairman and ranking Democrat on the Senate health subcommittee, are working on a bipartisan plan to give states more flexibility to fund Obamacare and continue the subsidies to insurance companies, which helps them keep premiums down for low-income families. A bipartisan group of nearly 40 moderate lawmakers in the House is advocating a similar approach.

Stopping the subsidies—which total up to $10 billion a year—would result in substantial fee hikes for millions of families and would force many of them to go without insurance. Any action the administration takes to increase health insurance fees even more is likely to bring considerable pressure on both Republicans and Democrats to block him.

There is also the problem of collapsing Obamacare coverage, mostly in rural areas represented by Republicans, where only one or often no insurance company remains to provide health coverage through the Obamacare exchanges. To counter that, there are proposals to provide a “stability” fund to bolster sinking exchanges.

Time is running out on such efforts because insurance companies must announce their 2018 rates by October. That could delay a focus on tax reform because it would involve both the Senate Finance and House Ways and Means Committees, which share jurisdiction over key Obamacare provisions and taxes.

Then there’s the need to keep the government running. Treasury Secretary Steven Mnuchin has said the debt limit needs to be raised by Sept. 29 before government funding runs out on Sept. 30. Congress must pass a budget and then approve a continuing resolution to authorize any government spending after Sept. 30.

A budget is particularly important to tax reform because it will be needed to pass certain tax changes with a simple majority using the budget reconciliation process. In addition, the National Flood Insurance Program—always a contentious issue—and the Federal Aviation Administration must be reauthorized before the end of September.

But the biggest challenge facing tax reform legislation remains the lack of a blueprint. Even if they try to pass legislation without any support from Democrats—an unlikely scenario given the divisions within the GOP—congressional Republicans still don’t have a consensus plan for the tax reform effort.

That plan is supposedly being put together by the so-called Big Six — Mnuchin; Gary Cohn, director of the National Economic Council; Senate Majority Leader Mitch McConnell, R-KY; Finance Committee Chairman Orrin Hatch, R-UT; House Speaker Paul Ryan, R-WI; and House Ways and Means Chairman Kevin Brady R-TX. But they have provided no specifics and announced only broad areas of agreement.

Those areas include three goals: Spur economic growth, make it easier for U.S. companies to compete with foreign companies and simplify the filing system for individuals to make taxes less of a hassle. Beyond those general principles, there is no apparent agreement on how much to cut tax rates for corporations, whether to cut the rate for pass-through businesses whose income is reported on the individual owners’ tax returns and whether to let companies continue to deduct the interest they pay on loans.

On the individual side, there is already considerable opposition to expected proposals to double the standard deduction while eliminating the deductions for charitable giving and for state and local taxes. And the expected proposals to reduce tax rates for the rich will meet significant opposition from Democrats and even some Republicans.

Republican leaders still haven’t decided whether tax changes should be “revenue neutral” or what method should be used to determine the impact on revenue. Some want to use “dynamic scoring,” where the overall impact on the economy is used in the scoring process. Others want to use more traditional “static scoring” which measures revenue lost against revenue gained from the tax code changes themselves without trying to calculate the impact on business or economic growth.

Given this uncertainty—and the relatively little time remaining once Congress returns—the likelihood of achieving anything but the most minimal changes appears marginal.

Revised overtime regulations are under attack...

The Obama administration’s efforts to dramatically increase the number of U.S. workers subject to overtime pay are under attack in the courts and from the Trump administration.

The Fifth Circuit U.S. Court of Appeals has set oral argument for the week of October 2 in a case challenging the revised overtime rules, which were supposed to take effect last December but were blocked by a federal judge in Texas just before Thanksgiving.

At the same time, the U.S. Department of Labor (DOL) late last month asked for public comment about both the salary and duties tests that should be used to determine whether an employee is “management” or must be paid overtime.

The comment period ends Sept. 25, 2017, but any resulting proposal for new rules is not expected before the appeals court issues its decision. The contested rule, issued by DOL under President Obama in May 2016, would more than double the salary threshold for workers to be exempt from overtime requirements under the Fair Labor Standards Act (FLSA) from $455 per week to $913 per week--an increase in the salary threshold from $23,660 per year to $47,476 per year.

Before that rule could become final on Dec. 1, 2016, a federal judge in Texas temporarily enjoined implementation on a nationwide basis after business groups argued that the DOL did not have authority to set salary level as one of the tests for who is a white-collar worker. In appealing that judge’s decision to the Fifth Circuit Appeals Court, the Obama administration argued that the salary level test was appropriate and legal.

Now, the Trump administration has taken a different position. While supporting the government’s right to use a salary test, the Trump DOL asked the appeals court not to address what the proper threshold should be. Instead, DOL will ask for public comment on what the appropriate pay level should be. Even if the appeals court agrees that a salary test is appropriate, the judges are likely to defer to the Trump administration to determine what salary level should be used.


Conflict mineral reports continue to provide little information...

Only a handful of companies required to file reports under the federal government’s conflict minerals regulations are able or willing to conclude that their products are “conflict free.” The overwhelming number of companies did not reach a conclusion.

That’s the finding of a new report from Development International, a non-profit organization that analyzes compliance with government regulations. The study looked at more than 1,100 filings submitted as of July 10.

The conflict minerals rule requires publicly-traded companies to conduct due diligence and report to the Securities and Exchange Commission (SEC) on whether their products contain tin, tungsten, tantalum or gold whose sale helps support armed groups in the Democratic Republic of Congo and neighboring countries. Since its enactment as part of the Dodd-Frank Act in 2010, the rule has led to confusion and expense for companies trying without success to trace and verify the source of the “conflict minerals” they use.

The new study found that the biggest problem for companies trying to comply with the SEC rules continues to be identifying the applicable smelters or refiners and the countries of origin of the conflict minerals.

A federal appeals court ruled in April that the rules requiring companies to report on the sourcing of their minerals potentially violates their First Amendment rights. As a result, the SEC has announced a temporary halt in enforcement of the conflict minerals rules. There are several bills in Congress to repeal that part of the Dodd-Frank Act.


Legalized marijuana poses complex challenges for drug-free workplace rules...

With 32 states and the District of Columbia legalizing some aspect of marijuana use, the jumble of marijuana laws represents a minefield of potential problems for enforcement of drug-free workplace rules. This situation is made even more challenging because marijuana use is still illegal under federal law.

A recent ruling by the highest state court in Massachusetts signals the special problems that may flow from laws allowing medical use of pot.

State laws making marijuana legal in some aspect cover everything from recreational use, to medical use, to medical use only of marijuana with extremely low levels of THC. Eleven states have prohibited employers from retaliation against employees who are legally using marijuana. Complicating the situation is the fact that in many states, an individual may be able to use marijuana legally outside of work but barred from employment or subject to firing under an employer’s drug-free workplace policies.

And, the federal government still considers marijuana as a Schedule I narcotic—the same category as heroin. While the Obama administration cut back on enforcement efforts against pot use that is permitted by state law, the current attorney general, Jeff Sessions, has long opposed legalizing marijuana and is expected to reverse the Obama policy of leniency.

In the Massachusetts case, an employee suffering from Crohn’s disease was legally using medical marijuana to treat her condition. Medical marijuana was made legal in Massachusetts in 2013. Her new employer required her to take a pre-employment drug test. She informed the company that she had Crohn’s and was using marijuana to treat it. After starting work, she was told she had failed the drug test and was fired.

She challenged her dismissal under the state anti-discrimination law. The company countered that federal law makes marijuana use illegal and so the company was not required to accommodate medical use. A trial court sided with the employer, but the state’s highest court ruled that the employee should be allowed to show that the marijuana use could be accommodated before she was terminated.

The Massachusetts decision is in stark contrast to prior rulings in California, Colorado, Oregon and Washington, where courts have said that employers have no duty to accommodate an employee’s otherwise legal use of medical marijuana. And as noted earlier, medical marijuana laws in a number states—including Arizona, Connecticut, Delaware, Illinois, Maine, Minnesota, Nevada, New York, Pennsylvania, and Rhode Island—protect employees from retaliation for medical marijuana use in the workplace.

Pruitt’s efforts to reverse environmental rules are meeting court challenges...

Scott Pruitt is discovering that turnabout is fair play.

Pruitt, who as Oklahoma’s attorney general, led 16 different court cases challenging actions taken by the Environmental Protection Agency (EPA), is now the EPA administrator. And he’s finding that his current efforts to reverse or modify some of the same EPA rules he once challenged are being confronted in court by states and environmental groups.

Those court challenges are having an impact.

The day after 16 states sued over Pruitt’s plan to delay Obama administration regulations to curb urban smog, Pruitt dropped that plan. The states were challenging Pruitt’s proposal to delay the October 1 date for implementing a rule to lower the level of ozone emissions from the burning of fossil fuels. Without mentioning the lawsuit from the states, Pruitt said he would now “work with the states through the complex designation process.” He said that the Clean Air Act gives EPA the flexibility to take an additional year to gather more information on which areas should be subject to the ozone rules.

And, 11 states have asked the U.S. Court of Appeals for the District of Columbia to order EPA to implement new safety rules for chemical plants and facilities as scheduled in March of next year. Pruitt has proposed a two-year delay while EPA assesses the rule’s impact on business.

That same appeals court this month agreed with a coalition of environmental groups and overturned Pruitt’s attempt to delay a rule limiting methane leaks at oil and gas facilities.

More court challenges are expected to focus on EPA’s failure to solicit public comment before delaying or suspending implementation of scheduled rules. Critics charge that Pruitt has tried to sidestep requirements to allow for such public comment.

Trump administration splits over gays in the workplace...

The U.S. Department of Justice (DOJ) and the U.S. Equal Employment Opportunity Commission (EEOC) appear to disagree over whether Title VII of the Civil Rights Act, which bans discrimination based on sex, also bars discrimination based on sexual orientation.

The division between the two federal agencies may stem more from President Trump’s delay in filling vacancies on the EEOC rather than from any policy division among Trump appointees.

Right now, however, Justice and the EEOC are clearly in disagreement as the U.S. Court of Appeals for the Second Circuit considers a case involving the termination of an employee because he was gay. The case is being closely watched as a harbinger of federal policy regarding the rights of the LGBT community, particularly in the wake of President Trump’s decision to ban transgender individuals from serving in the military.

The EEOC, which handles civil rights disputes in the workplace, has filed a brief urging the appeals court to support the fired employee. Under President Obama, the commission has for several years argued that Title VII bans anti-gay discrimination because such bias is based on sexual stereotyping and is therefore discrimination based on sex.

Even though President Trump is now in the White House, the EEOC brief in this case was filed by a commission with two Democrats and one Republican. That’s because the president only recently nominated his own picks to fill two open seats on the commission—which would give Republican appointees a majority—and those nominees have not yet been confirmed.

Enter the Justice Department, which is not a party to the case before the appeals court. The department did not wait for an invitation and filed a “friend of the court” brief arguing that "the EEOC is not speaking for the United States and its position about the scope of Title VII is entitled to no deference beyond its power to persuade."

The appeals court will have to sort out the government’s differences on this important issue.


NLRB continues to protect employee statements on social media...

Monitoring employee activity on social media continues to present challenges for businesses trying to dictate what their workers can and can’t say on the internet.

Late last month, the National Labor Relations Board (NLRB) ruled that an employee could not be fired for a Facebook post that encouraged a former co-worker to sue the company. The case involved an ambulance company which argued that it’s social media policy forbidding disparaging social media statements justified terminating the employee.

The NLRB also ruled that the same company could not fire another employee who used Facebook to make false statements about the safety of the company’s equipment.

The company’s social media policy stated that employees “will refrain from using social networking sights [sic] which could discredit [the company] or damages [sic] its image.” The board said that language was overbroad and restricted the employees’ rights to discuss terms and conditions of their employment in violation of the National Labor Relations Act (NLRA).

In the first case, a former employee posted that she had been unjustly terminated by the company, and a still-employed worker responded that “you may think about getting a lawyer and taking them to court…[Y]ou could contact the labor board too.” The company fired the employee for those comments. The NLRB ruled that the Facebook exchange involved “concerted” activity for the mutual protection of workers and was therefore protected under the NLRA.

In the second case, the NLRB said the worker should not have been fired even though his charges of safety violations could not be verified.