ACC Employment and Labor Law Network October Newsletter
Message from the Employment and Labor Law Network (ELLN) Chair  
2018 ACC Annual Conference and ELLN Annual Meeting!  
ACC Releases its 2018 Global Compensation Report  
Upcoming Events  
Recent Presentations & Webcasts  
Legal and Legislative Developments  
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Updates from ACC Networks

Message from the Employment and Labor Law Network (ELLN) Chair
Kevin Chapman

Opportunities for Volunteer Service

  Within ACC there are hundreds of in-house counsel who volunteer their time for the benefit of the organization and for the benefit of our members. All the members of the leadership team at the ELLN are such volunteers, who devote a few hours per month (or sometimes more) to make our Network so vibrant and valuable. We also do it for our own intellectual and professional growth. Particularly for those of us who work in corporate legal departments where there are few (if any) other employment & labor law specialist, the ELLN allows us to connect with our colleagues, share information and ideas, and feel like we’re part of a huge corporate law department rather than being a team of one or two.  Being a subcommittee leader or volunteering for one of our Network’s executive leadership roles is a great way to grow your own personal network and stay connected to the group.

  As we move into our next fiscal year that starts with our October meeting in Austin, Texas at the ACC Annual meeting, I want to personally invite you to consider volunteering to be involved in the ELLN’s leadership. We’re happy to have you listen in to the monthly meetings, read the subcommittee reports, follow the eGroup discussions, take advantage of the library materials, and attend the live programs and meetings – all without volunteering to be a leader.  It’s fine. No pressure.  But if you want to get more involved, there is a very wide range of opportunities. If you practice in a particular sub-specialty, we have positions as one of several subcommittee co-chairs who follow that specialty area and report on important developments to the wider group. Each co-chair spends only a few minutes per month collecting information that they are already following daily for distribution to the group at our monthly meeting. Other subcommittee leaders take responsibility for guiding and scheduling programming such as webcasts and our slate of annual meeting presentations. Other intrepid subcommittee leaders have taken enormous initiative and created whole new resources for the ACC’s membership. We also have a Library and Archives Task Force that is standing by to assist ACC staff to review and improve existing resources in the ACC library.The range of opportunities is huge.

  So, if you have an interest, please reach out to our leadership team by sending an email to, or send me a personal email at, and let us know.  We’ll get back to you and match you up with the right opportunity.

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2018 ACC Annual Conference and ELLN Annual Meeting!
See you in Austin!

The ACC Annual Meeting will talk place in Austin, Texas from October 21 to October 24, 2018 at the Austin Convention Center.   If you have not registered yet, please visit A full detailed meeting schedule is also available on this website.  We hope to see you in Austin!  For information on Employment Law related sessions and events see below.     

Featured ELLN Panel Sessions and Events during the ACC Conference

· Come and see us at Booth #405! Stop by Booth 405 to say hello to our gracious ELLN sponsor Jackson Lewis, and meet other ELLN members. Several ELLN members will be volunteering at the Jackson Lewis booth #405 during the ACC Conference.  

ELLN will have a laptop at the Jackson Lewis booth where ACC members who have not yet registered as an ELLN member can sign up on the spot, and we'll have a sign-up sheet where members can indicate a desire to be contacted about leadership opportunities.

· Additionally, our friends at Jackson Lewis have generously invited us all to attend an authentic Texas barbecue dinner with stunning views of downtown Austin on Monday might, October 22, 2018, from 7:30 p.m. to 10:00 p.m, at Brazos Hall. Click here to RSVP if you haven't already.

If you are interested in volunteering at the Jackson Lewis/ELLN booth, and/or learning more about Jackson Lewis sponsored events during the conference, please contact Ramlah. Bari at  

Monday, October 22, 2018

· Session Presented by ELLN: Pay Equity Laws and Salary Inquiry Bans - 10:00 a.m. to 11:30 a.m.  

Session Description:  Many states and local jurisdictions are adopting expanded pay equity laws, and the federal government has shown increased interest in this area. These proposed and new laws require equal pay for comparable work (and not just the same work). Many of these laws also contain bans on salary history inquiries in the recruiting process and protect employees’ rights to inquire about and discuss compensation paid to others. Some require equal pay not just on the basis of gender but also on the basis of other legally protected categories. In this review of current legal developments (both adopted and proposed laws), attendees will learn to review pay equity issues at the global level and provide practical guidance to employers about how to evaluate and establish compensation for roles in a compliant manner. 

Speakers Include: Rachel Barack, VP – Corporate Compliance & Managing Counsel, The Clorox Compnay; Christine Binotti, Lead Counsel, Motorola Solutions, Inc.; Tritia Murata, Partner, Morrison & Foerster, LLP; and Jody Riger, Senior Corporate Counsel, Employment & Labor/Ethics, Sun Chemical Corporation.   

This Session is currently listed as Course 108, and assigned to Meeting Room 19.  Please view your Program Schedule to confirm the location. 

· Session Presented by ELLN:  Paid Time-off Trends: Statutory and More – 11:45 a.m. to 1:15 p.m.

Session Description: Federal, state and local legislators are increasingly considering—and passing—laws requiring that employees be given paid time off, ranging from paid sick leave to paid parental and/or family leave. Many employers are evaluating their own policies and offering unlimited time off and paid parental and/or family leave. The speakers will review the legal status of paid leave requirements and voluntary policies throughout the United States, and compare them with paid leave legal requirements around the world. Walk away with practical guidance for keeping up with this ever-expanding right.

Speakers Include: Katie Acevedo Associate General Counsel, Sephora USA, Inc.; Marti Cardi, Vice President, Product Compliance, Matrix Absence Management;  Abigail O’Connell, Senior Counsel, Sun Life Financial Employee Benefits Group; Ronald Peppe, General Counsel & VP Human Resources, Canam Steel Corporation.  

This Session is currently listed as Course 205, and assigned to Meeting Room 18CD.  Please view your Program Schedule to confirm the location. 

· ELLN Business Meeting will talk place at the ACC Annual Conference on Monday, October 22, 2018 from 1:30 p.m. to 2:30 p.m. CDT. The meeting will be in Meeting Room 6 at the Austin Convention Center.  

If you are not attending the Annual Meeting, don’t worry!You can still dial-in to our business meeting and join in on the discussion.    

Dial-in 877-647-3411. Participant Code: 227-163-4930. All ACC members are invited to attend the meeting. You do not need to be an ELLN member to attend.  

· Session Presented by ELLN: Employment Law Update – 2:30 p.m. to 4:00 p.m.

Session Description: This session highlights the most important trends, legislation, regulation and case law affecting labor and employment law over the past year, including regulatory changes and enforcement trends, new and proposed legislation from Congress and hot trends at the state and local level. Join an experienced panel of experts for insight and practical knowledge on these new developments in workplace law.

Speakers Include: Joanna Blake, General Counsel & VP of People Services, WKS Restaurant Group; Gregg Formella, Head of Legal, PLH Group Inc; April Goff, Senior Counsel, JCPenny Company, Inc.; Tracie Maurer, Attorney at Law, Jackson Lewis P.C.

This Session is currently listed as Course 304, and is assigned to Meeting Room FG.  Please view your Program Schedule to confirm. 

· Session Presented by ELLN: Navigating ADA Accommodation Requests and the Interactive Process – 4:30 p.m. to 6:00 p.m.

Session Description: Human resources departments spend much of their time responding to requests for US Americans with Disabilities Act accommodations, including engaging in the interactive process and determining which accommodations are required. The law is evolving and unclear in many areas. This session will review key requirements of the ADA interactive process, address common and trending ADA request scenarios and suggest best practices for designing and implementing an ADA accommodation process. Topics will include a review of types of ADA accommodation requests, the proliferation of state pregnancy accommodation laws, designing and implementing a compliant ADA accommodation process, documenting essential job functions and the interactive process, recognizing potential accommodation requests and handling medical information.

Speakers Include: James Beyer, AVP, Assistant General Counsel, Infosys, Ltd.; Ryan Brown, Director, Legal, Rosetta Stone Ltd., Linda Jo Carron, Associate General Counsel – Americas, Hyster-Yale Group, Inc.; Patricia Pryor, Principal, Jackson Lewis P.C.      

This Session is currently listed as Course 409, and assigned to Meeting Room 18AB.  Please view your Program Schedule to confirm. 

Tuesday, October 23, 2018

· Session Presented by ELLN: Employment and Labor Law for Generalist and New In-house Counsel – 9:00 a.m. to 10:30 a.m.

Session Description: Back by popular demand with new topics! Whether you’re a new in-house counsel or an employment and labor law novice, attend this session to learn about a wide range of issues that US in-house counsel face daily, including: drafting and updating employee handbooks and employer policies; drafting effective offer letters, sales and bonus plans; issues associated with the trend toward agile and open workspaces; and responding to demand letters from lawyers representing disgruntled employees (and/or actual claims filed with the EEOC or state human rights commissions).

Speakers Include: Douglass Hass, General Counsel, Lifeway Foods; Monica Ketarpal, Attorney at Law, Jackson Lewis P.C.; Susan Tahernia, Associate General Counsel, CentralCare Incorporated; Monica Torrez-Pfister, Director of Compliance and Assistant General Counsel, TrueBlue, Inc.      

This Session is currently listed as Course 506, and assigned to Meeting Room Ballroom D.  Please view your Program Schedule to confirm the location. 

· ACC Reception  – 6:00 p.m. to 7:00 p.m.

Other Employment Law Related Sessions in Austin include:

·  Session 103 – Internal Investigation Workshop, Monday, October 22, at 10:00 a.m. to 11:30 a.m.

·  CLOLL03 – The Role of CLO: Tackling Sexual Harassment from Within and Beyond, Monday, October 22, at 4:30 to 6:00 p.m.  

·  Session 610 – Sexual Harassment: Not Just a US Issue, Tuesday, October 23 at 11:00 a.m. to 12:30 p.m.  

·  Session CLOSM01 – Internal Investigations on a Budget.  Tuesday, October 23 at 11:00 a.m. to 12:30 p.m.

· Session 708 – Cross-Border Employee Issues for US Companies, Tuesday, October 23 at 2:30 p.m. to 4:00 p.m. 

· Session 709 – Benchmarking Settlement Techniques and Strategies, Tuesday, October 23 at 2:30 p.m. to 4:00 p.m.  

· Session 710 – Indispensable:  Getting into the Weeds of Legal Cannabis, Tuesday, October 23 at 2:30 p.m. to 4:00 p.m.  

· Session 711 – Intersection of the Gig Economy and Employment Law, Tuesday, October 23 at 2:30 p.m. to 4:00 p.m.  

· Section 805 – Business Consequence of Bad Behavior, Tuesday, October 23 at 4:30 p.m. to 6:00 p.m.
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ACC Releases its 2018 Global Compensation Report

The ACC Global Compensation Survey performed earlier this year was a first of its kind. ACC received survey responses from more than 5,000 lawyers in corporate legal departments from 65 countries and 39 different industry sectors. The Global Compensation Report is the most in-depth self-reported compensation survey for in-house counsel and legal operations professionals available. It is an essential tool for companies seeking to stay competitive in the marketplace and lawyers considering career moves. You can learn more and access the report at ACC’s website here:

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Upcoming Events

Employment and Labor Law Network Call – November 7, 2018

If you are unable to join us at the next ELLN Business Meeting on October 22, 2018, we hope you can make our next regular scheduled call on November 7, 2018 at 12:00 p.m. PST / 3:00 p.m. EST.  

Mini MBA for In-House Counsel – November 7-9 2018 in Boston, MA

This two-and-a-half day program introduces the important business skills in-house practitioners need to succeed in today’s competitive corporate environment. The program will xxplore the essential business skills to enhance and sharpen your management knowledge in critical MBA disciplines: accounting, finance, strategy, and organizational behavior. A capstone project at the end of the course will allow you to practice and apply your new skills. Sign up today on the ACC website.
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Recent Presentations & Webcasts

Legal Quick Hit – New Rules for Pregnancy Accommodations: How to Ensure Your Organization is Compliant

Presented by Jackson Lewis, P.C.

Jackson Lewis’ Stephanie Lewis, Principal in the Greenville, South Carolina office of the law firm, presented a timely and important review of federal and state laws regarding pregnancy accommodations, which are changing rapidly. This Legal Quick Hit explored light duty work for pregnant employees, leave as an accommodation, and best practices for compliance with the in light of the United States Supreme Court decision of Young v. United Parcel Service and a growing number of state and local regulations regarding pregnancy accommodations.  Ms. Lewis stated that the key takeaway was that employers may wish to accommodate pregnancy the same as any other disability, even if there is no underlying disability accompanying the pregnancy. The EEOC has issued updated pregnancy accommodation guidance that light duty options must be provided to pregnant employees if provided to other employees for any other disability. Employers are also advised not to automatically place pregnant employees on forced leave if other reasonable accommodations are available.  Ms. Lewis also stressed that state and local laws present in almost every jurisdiction often complicate the matter, as these laws often vary from federal laws and require explicit notice or policy/poster requirements. Employers who are not subject to federal pregnancy anti-discrimination laws may still find themselves subject to state and/or local laws on the issue. Employers should review their pregnancy and parental leave policies and educate front line managers on how to comply with these requirements.

Get the presentation materials here


Ms. Lewis can be contacted via email at or by phone at 864-672-8048.  


On Demand Presentation:  The U.S. Employers Guide to the FMLA

This webcast was designed for general practitioners and those new to employment law as well as experienced practitioners and focused on the Family and Medical Leave Act (FMLA) which can often prove challenging for employers. The webcast discussed the key foundational things employers need to know about the FMLA, including which employers are covered, when employees are eligible and entitled to take FMLA leave, and what rules apply when employees take FMLA leave.

This On-Demand webcast presentation was given by Mike Shetterly, Shareholder at Ogletree Deakins Greenville, South Carolina Office.  Mr. Shetterly regularly counsel management on an array of employment and labor law issues, but the primary focus of his practice is FMLA and ADA compliance. Mr. Shetterly can be reach at or 864-271-1300.   

Get the presentation materials here:


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Legal and Legislative Developments

Policy Subcommittee

1.    Non-Compete Reform Continues

The trend of state legislatures reigning in employee non-compete agreements (discussed in this Committee’s June 6, 2018 minutes) has continued through the summer and into Fall.

  • Massachusetts: House Bill 4419 has now been signed into law as “An Act Relative to the Enforcement of Noncompetition Agreements” and will come into effect on October 1, 2018. Specifically, the law will prohibit the enforcement of Non-compete agreements for 4 categories of employees:
    • Employees who are nonexempt under the Fair Labor Standards Act (FLSA).
    • Undergraduate or graduate students in a short-term employment relationship.
    • Employees laid off or terminated without cause as the term “cause” is defined in their employment agreement.
    • Employees under the age of 18.

Garden Leave Requirement: For those seeking to enforce a Non-compete agreement, some form of “garden leave” payment must be provided during the restricted period – no less than 50% of the former employee’s highest annualized salary within the 2 years proceeding termination, pro rata. Employers and Employees may contractually agree to a lesser amount provided that consideration requirement is met.

2.   USDOL Announces Listening Tour for Overtime Wage Rule and White Collar Exemption

On August 27, the U.S. Department of Labor announced that it would hold a listening tour in Atlanta, Seattle, Kansas City, Denver, and Providence “to gather views” regarding the Overtime Rule and the standing exemption for white collar employees. The federal court for the Eastern District of Texas had previously stuck down the Obama Administration’s revisions to the Overtime Rule, and the Trump Administration had announced that they were not going to actively defend the case on appeal. This listening tour is to assist the DOL to develop their own version of the policy.

3.    New York Releases Model Policies for New Sexual Harassment Laws

Earlier this year, New York state passed sweeping new requirements for employers regarding sexual harassment. Among the requirements were for a sexual harassment policy to be adopted and distributed to employees. New York has now released a website and model policy to assist employers in compliance with the new law. The resources are available below:

Informational Website:

Labor Subcommittee

§ NLRB Member Pearce’s Term Expires; Trump Re-Appoints to NLRB One Day Later

On August 27, 2018, National Labor Relations Board (NLRB) member Mark Gaston Pearce’s 5-year term expired.  The following day, August 28, 2018, President Trump rejected recommendations from pro-business interests and re-appointed Pearce, just one day after his initial full term expired.  Pearce was originally appointed to the NLRB by President Obama as a recess appointment in March of 2010, an appointment that was challenged through the federal courts and ultimately overturned as unconstitutional by SCOTUS in 2013. Subsequently, Pearce was re-appointed and confirmed by the Senate to a full 5-year term. With his re-appointment by President Trump, he will now serve on the NLRB until 2023 at least. Insider speculation is that the re-appointment was part of a deal the President cut with Senate democrats who were blocking a host of other appointments that Trump had pending in the Senate. With Pearce now re-appointed, it is believed those appointments will now move quickly through the upper branch.       

Citation: Dunkin Donuts Independent Franchise Owners website article issued August 31, 2018:

§ NLRB Progresses Early/Voluntary Retirements: Changes in Region Staffing?

On August 7, 2018, the National Labor Relations Board (NLRB) announced that it was offering voluntary early retirement and voluntary separation to employees holding eligible positions in the Agency under the Voluntary Early Retirement Authority (VERA) and Voluntary Separation Incentive Payments (VSIP) programs.  The window period for the submission of applications for the VERA and VSIP programs ended on August 21, 2018.  Applying for the VERA and VSIP opportunities was entirely voluntary.  As of the close of the application period, 38 Agency employees holding positions within the Agency eligible for VERA and VSIP submitted applications to participate in the opportunity for voluntary early retirement and separation. 

VERA changes the normal retirement eligibility to allow employees the opportunity to voluntarily retire earlier, with an immediate annuity, with 20 years of service at age 50, or at 25 years of service regardless of age. VSIP provides a financial incentive for employees to voluntarily separate by optional retirement, voluntary early retirement, or resignation. The NLRB offered VERA and VSIP opportunities only to employees in eligible job categories.  The VERA and VSIP program offering was part of an initiative to address staffing imbalances and to reposition the Agency to better carry out its mission.       

Citation: NLRB’s website press release issued online August 22, 2018:

§ NLRB Calls for Briefs on Employee Use of Employer Email (Purple Communications)

On August 1, 2018, the NLRB invites the filing of briefs on whether the Board should adhere to, modify, or overrulePurple Communications, Inc., 361 NLRB 1050 (2014). In Purple Communications, the Board held that employees who have been given access to their employer’s email system for work-related purposes have a presumptive right to use that system, on nonworking time, for communications protected by Section 7 of the National Labor Relations Act. In doing so, the majority in Purple Communications overruled Register Guard, 351 NLRB 1110 (2007), which held that while union-related communications cannot be banned because they are union-related, facially neutral policies regarding the permissible uses of employers’ email systems are not rendered unlawful simply because they have the incidental effect of limiting the use of those systems for union–related communications. In addition, while Purple Communications and Register Guard addressed only email systems, the Board is also inviting comment on the standard it should apply to evaluate policies governing the use of employer-owned computer resources other than email.

The case is Caesars Entertainment Corporation d/b/a Rio All-Suites Hotel and Casino, 28-CA-060841. Chairman John F. Ring was joined by Members Marvin E. Kaplan and William J. Emanuel in issuing the Notice and Invitation to File Briefs. Members Mark Gaston Pearce and Lauren McFerran dissented.  Briefs from parties and interested amici must be submitted on or before September 5, 2018.

Citation: NLRB’s website press release issued online August 1, 2018:

Unlikely Ally: Employer Makes a Meal Out of CBA Waiver (in California!)

Synopsis: A collective bargaining agreement, to permissibly waive a negotiable statutory right, must do so in a clear and unmistakable manner, by mentioning either the statutory protection being waived or the statute itself. The Court of Appeal has sensibly applied that standard in upholding a CBA’s waiver of a first meal period for shifts not exceeding six hours.


The California Labor Code states that an employee working more than five hours in a shift is entitled to a meal period unless the employee and employer mutually waive the requirement to provide a first meal period for a shift that does not exceed six hours. Thus, while a meal-period is a statutory right, and while statutory rights generally are un-waivable, the statute itself makes a first meal period waivable within the circumstances just specified.

Kristina Ehret and Elmer Gillett were cashiers at a WinCo Foods store. WinCo’s hourly employees belonged to a collective bargaining unit represented by an employee association. Gillett, as chair of the association, negotiated a collective bargaining agreement with WinCo. The CBA stated that “when a work period of not more than 6 hours will complete a day’s work, a meal period is not required.”

After the employees sued WinCo for failing to provide meal periods, WinCo, represented by Seyfarth Shaw, moved for summary judgment, arguing that the CBA had waived the employees’ statutory right to a meal period. The trial court granted WinCo’s motion, and the employees appealed.

The Appellate Court Decision

On appeal, the employees argued that the CBA failed to qualify as a valid waiver of statutory rights because its language was not “clear and unmistakable.” The Court of Appeal rejected the argument and affirmed the trial court’s decision. Ehret v. Winco Foods, LLC.

The Court of Appeal began its analysis by confirming that an employee—and a union on behalf of represented employees—may lawfully waive negotiable statutory rights. (The Court of Appeal expressed doubt, however, that employees could ever waive nonnegotiable statutory rights.) But any such waiver of a negotiable statutory right in a CBA must be “clear and unmistakable,” meaning that the CBA must do more than speak in general language: the language must specify either the statutory protection being waived or the statute itself.

The employees argued that the CBA flunked this test for a valid waiver because the CBA did not use the word “waive,” and did not cite the statute addressing meal periods. The Court of Appeal rightly rejected these hypertechnical arguments. Even though the CBA did not cite any statute addressing meal periods, the CBA—by saying when “a meal period is not required”—did use language that was “flatly irreconcilable” with the statutory right, and in a context in which the statute, by its terms, made that right negotiable.

What Ehret Means for Employers

Although Ehret addressed only the enforceability of a meal period waiver in the context of a CBA, its analysis is useful generally. California famously protects employees’ rights. One right so protected, however, is the employee’s right to waive negotiable statutory protections. One such protection is a meal period—subject to negotiation under the limited circumstances existing here. That protection can be waived either individually or, as here, through collective bargaining. (Another negotiable right, subject to waiver only through collective bargaining, is the right to receive vested vacation pay upon termination of employment, under Labor Code section 227.3.)

Ehret champions reason and common sense by making it clear that a waiver, to be valid, need not use magic words such as “waive” and need not legalistically cite the statutory provision at issue. Language suffices to accomplish a waiver if the language simply makes clear that the employee is giving up a negotiable right that the statute, absent a waiver, would protect.

Citation: Seyfarth Shaw website publications release issued online August 16, 2018:

Be Careful When Using Severance Agreements with Union-Represented Personnel: Board Finds Right to File ULPs Not Waived

On August 21, 2018, the NLRB issued its decision in A.S.V., Inc. a/k/a Terex where the Board’s majority held that laid-off employees who had signed severance agreements did not waive their right to pursue ULPs based on their discharges.  In this case, the employees were laid off just after a successful representation election.  The union (who was not a party to the agreements) and employees contended that the layoffs were made as part of a scheme to prevent unionization.  Applying the Independent Stave criteria (287 NLRB 740, 743 (1987)), the Board wrote that the ALJ properly found:

“Union had not agreed to be bound by the severance agreements; that the General Counsel contested the validity of the agreements; that while the Respondent did not have a previous history of violating the Act, the severance agreements were executed in an atmosphere of serious, unremedied unfair labor practices; and that the agreements not only left many of the Respondent’s unlawful actions unremedied, but also failed to provide for remedial notice to the plant’s other employees and for reinstatement. Moreover, the violations at issue were directed toward employees of the facility at large and not just to the individuals terminated.”

More importantly for employers, the ALJ also found that several of the provisions in the severance agreement were unlawful.  Specifically, the employees agreed (1) “without limitation,” to “assist” [the Respondent] in any matter . . . about which [the employee] may have knowledge, information, or expertise”; (2) not to disclose or use “for [the employee’s] own benefit” any “secret or confidential information,” which was defined to include “employee” information; (3) to “obtain the Company’s permission” for disclosure whenever the employee has “any doubt about whether any information is secret or confidential”; and (4) to “not make negative or critical statements about the Company.”

It’s a good reminder for employers to consider cleaning up their severance/settlement agreements.  Some of these provisions not only risk adverse findings from the Board and other agencies, but also serve no good purpose.  Who is going to enforce that provision about “negative or critical statements” anyway?

Citation: National Labor Relations Board website release issued online August 21, 2018:

For more information or to get involved with the Traditional Labor Subcommittee, we encourage you to contact Committee Chairs Micah Heilbrun at or Darryl Uffelmann at, Douglas Hass at, or Gregg Formella at


ERISA Subcommittee


·     Quick Background

o   Code Section 162(m) generally limits public companies’ deductions to $1M per year for compensation paid to the executives listed in the compensation disclosure section of the annual proxy statement (“covered employees”).

o   Before the Tax Cut and Jobs Act (“Tax Reform”), there were large exceptions to the 162(m) deduction cap for (a) payments to the CFO, (b) post-termination payments (like severance), and (c) performance-based compensation (e.g., performance share awards).

o   Tax Reform eliminated all of these exceptions, except with respect to “grandfathered” amounts payable under a written binding contract in effect on November 2, 2017 that is not materially modified after that date.

·     IRS Notice 2018-68

o   On August 21, 2018, the IRS issued Notice 2018-68 providing guidance on covered employee determinations and grandfathered contracts.  The below summarizes the changes most relevant for employment lawyers.

o   Written Binding Contract (e.g., an employment agreement)

§  Amounts (like severance) are considered payable under a “written binding contract” in effect on November 2, 2017 (and not subject to the 162(m) deduction cap), only if the company is obligated by law (e.g., state contract law) to pay the compensation.  Compensation amounts are not part of a written binding contract if:

·  the obligation is subject to further corporate action (e.g., equity grants in employment agreements subject to further board approval); or

·   the company has discretion to reduce or eliminate the amount payable (e.g., annual bonuses in employment agreements subject to adjustment in the board’s discretion).

o   Impact of Renewal of a Grandfathered Contract/Employment Agreement

§  Written binding contracts that are renewed after November 2, 2017 are not grandfathered.

§  A contract that is terminable by the company without the executive’s consent, including an agreement that automatically renews unless either the company or executive provides notice of nonrenewal, is treated as “renewed” on the date that such termination could’ve been effective (unless the contract can be terminated only by also terminating the executive’s employment).

·      If, under an employment agreement, the company must provide advance notice of termination before a certain automatic renewal date, then the agreement loses grandfathered status as of that renewal date (regardless of whether notice is actually given).

·      If the company has the right to terminate an employment agreement at any time, it is not grandfathered at all.

o   Material Modifications

§  A material modification means an amendment to a grandfathered contract increasing the compensation payable to the executive above a reasonable cost-of-living increase (subject to limited exceptions for compensation accelerations and deferrals).

§  A separate agreement providing for increased compensation also is treated as a material modification if based on substantially the same elements or conditions as compensation paid under the grandfathered contract.  However, providing another form of compensation without any basis in the grandfathered contract would not be a material modification.

§  E.g., an increase in an executive’s base salary higher than provided in his/her grandfathered employment contract (and greater than a cost-of-living increase) would be a material modification.  But granting the executive restricted stock units not contemplated in the employment contract would not be a material modification.


·     Key Takeaways

o   Know which executives are covered employees subject to the 162(m) deduction cap.  The new Tax Reform rule is “once covered, always covered,” so someone in your company will be keeping track.

o   Determine whether those covered employees have any grandfathered employment agreements or other contracts.  If so, make sure you don’t materially modify those contracts and lose company deductions uncapped by 162(m).

o   For non-grandfathered employment agreements with covered employees, consider stretching severance payments over longer periods to maximize company deductions under the 162(m) $1 million cap.  Consult with executive comp counsel on modifying severance under existing agreements in compliance with Section 409A.

o   Keep in mind, Tax Reform reduced the corporate tax rate from 35% to 20%, making deductions less valuable.  So the desire to make changes to grandfathered comp arrangements must be weighed against the value of the lost deduction.

o   The IRS anticipates issuing regulations providing further guidance on Tax Reform’s changes to 162(m).


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Join Our Leadership!

ELLN is looking for members interested in serving as Committee Secretary as well as leadership positions for various subcommittees. This is a great way to meet your colleagues and help shape the future of the Employment and Labor Law Network.

If you would like to volunteer or learn more about what’s available, please get in touch with the ELLN Chair, Kevin Chapman, at
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