On June 20, 2011, the Board of Directors of the Internet Corporation for Assigned Names and Numbers (“ICANN”) approved a new program for generic top-level domains (“gTLD”).  The new gTLD Applicant Guidebook is available online at http://www.icann.org/en/topics/new-gtlds/comments-7-en.htm.

Under this new program, new gTLDs are available for purchase by corporations, organizations, and institutions.  Examples of such new gTLDs include branded gTLDS such as .Kaufman&Canoles, industry-related gTLDS such as .lawyer, and geographically specific names such as .Norfolk.   Under the proposed new program, the applicable fees will be cost prohibitive for many smaller businesses as applicants will pay $185,000 for the registration fee and initial evaluation, with additional fees applied depending on any extended evaluation required and any objections and disputes which arise. –Kristan B. Burch

The Department of Health and Human Services announced a new demonstration project on June 6, 2011 that will test the effectiveness of doctors and other health professionals working in teams to improve care for up to 195,000 Medicare beneficiaries.  The Federally Qualified Health Center (“FQHC”) Advanced Primary Care Practice demonstration project will pay an estimated $42 million over three years to up to 500 FQHCs to coordinate care for Medicare patients.  According to Administrator Dr. Mary Wakefield, by improving coordination between providers “the FQHCs in this project can increase access to important primary care services and thus reduce the need for costly hospitalizations or emergency department visits.”

The eligibility requirements for FQHCs are:

• FQHCs must have provided primary care medical services to at least 200 eligible Medicare beneficiaries in the most recent 12-month “look-back” period. This can include those with both Medicare and Medicaid coverage.
• All participating FQHCs must be listed in the Provider Enrollment Chain and Ownership System (PECOS) and be able to receive electronic funds transfer (EFT).  FQHCs that have not recently submitted a Form 855A are not listed in PECOS and, therefore, will not be eligible to participate in the demonstration.
• FQHCs that currently do not receive claims payment through EFT must submit the necessary form to receive EFT.
• FQHCs must submit claims for payment to National Government Services or to Noridian Administrative Services—the jurisdiction 3 Medicare Administrative Contractor (MAC).

Participating FQHCs will receive a monthly care management fee of $6.00 for each eligible Medicare beneficiary attributed to their practice. This fee is intended to help defray the cost of transformation into a patient-centered, coordinated, and seamless primary care practice.  The fee, which will be paid quarterly, will be in addition to the usual all-inclusive payment FQHCs receive for providing Medicare covered services. 

Applications for the project will be accepted from June 6, 2011 through August 12, 2011, and the demonstration will be conducted September 1, 2011 through August 31, 2014. 
–Christopher L. McLean

It’s a real crapshoot these days trying to enforce post employment restrictive covenants with employees.  It is somewhat easier, however, to enforce restrictive covenants entered into in connection with a “sale of a business.”  Judge Moon in the Western District of Virginia  recently held that a non-compete agreement entered into in connection with a settlement agreement with a former employee should be reviewed under a more enforcement friendly “sale of a business” standard.  According to Judge Moon:

Under the circumstances presented in the instant matter, a requirement of reasonableness is adequate to afford fair protection to the interests of both parties to the contract and the public, and I decline to employ the more restrictive standard designed to review covenants contained in employment contracts. The primary purpose of the Agreement was to settle McClain’s claims of embezzlement against Carucci, not to regulate the terms of Carucci’s employment, which had ceased before the Agreement was formed. The Agreement was a result of an arms-length negotiation in which Carucci was represented by counsel. (See Agreement ¶ 18 (stating that the parties “participated jointly in the negotiation and drafting of this Agreement and that in the event that an ambiguity or  [*17] question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties . . . .”.) The Agreement contained valuable consideration for both parties. In exchange for paying $250,000 and submitting to the restrictive covenants, Carucci avoided liability for his acts and benefited from a confidentiality clause, a non-disparagement clause, and a seven-day revocation clause. This was not a “take it or leave it” situation in which an employee must agree to a noncompete covenant in order to secure a job. Rather, bargaining power was more equally distributed, with Carucci allegedly in possession of over $285,000 in company funds, and McClain entitled to sue Carucci for their recovery or seek other legal remedies. Finally, the noncompete covenant is one element of an agreement settling a private dispute, which, as a highly favored agreement in the law, should not be subjected to undue limitations on its enforceability. See Crandell v. United States, 703 F.2d 74, 75 (4th Cir. 1983); Duplan Corp. v. Deering Milliken, Inc., 540 F.2d 1215, 1221 (4th Cir. 1976).

Accordingly, if you have a departing employee or executive, or are settling litigation with a former employee, it may be worthwhile to include a non-competition covenant in the settlement or severance agreement in an effort to increase the likelihood of enforcement.  –Scott W. Kezman

The Antiboycott Provisions of the Export Administration Regulations (EAR) are yet another set of prohibitions that exporters must be aware of and comply with at all times.  The antiboycott provisions are aimed at preventing U.S. persons from taking actions to further, endorse, or support foreign governments’ economic boycotts of certain countries.  For purposes of international trade, there are three different types of boycotts.  First, there is a primary boycott, which is when a country refuses to trade with another country.  This is NOT the type of boycott that the EAR directly addresses.  The EAR directly addresses secondary boycotts, which is when a country refuses to trade with an entity that does business with the country being boycotted.  For example, a country’s refusal to do business with a country or company that does business with Israel would be a secondary boycott.  The EAR also directly addresses tertiary boycotts, which is when a country refuses to trade with an entity who does business with companies on their “blacklist.”       

To prevent violations of the antiboycott provisions, you should first consider whether these provisions apply to your company.  The antiboycott provisions apply to U.S. persons, which include individuals and companies located in the U.S. and their foreign affiliates, involved in the interstate or foreign commerce of the U.S.  The export/import of goods or services are examples of activities that fall within the scope of the antiboycott provisions. 

If the antiboycott provisions apply to your company, then your company is prohibited from refusing or knowingly agreeing to refuse to do business with a boycotted country or blacklisted companies pursuant to an agreement with or a request from a boycotting country.  15 C.F.R. 760.2, which can be found at http://www.gpo.gov/bis/ear/ear_data.html, includes other prohibitions and detailed examples of prohibitions.

Someone in your company should be responsible for verifying that there are no company violations of the antiboycott prohibitions.  Pay close attention to expressed terms or conditions in contracts and letters of credit.  If you would like more information on the Antiboycott Provisions of the EAR, please feel free to contact me.  –R. Ellen Coley

The Department of Labor (“DOL”) recently proposed a new regulation that could negatively impact sponsors of Employee Stock Ownership Plans (“ESOPs”). Under this proposed rule, valuation firms that provide appraisals of ESOP companies would be deemed to constitute “fiduciaries” for purposes of ERISA, a change which would increase the potential liability faced by valuation firm and would accordingly make it more difficult and costly for ESOP companies to obtain their required annual appraisal.

Senators Ayotte, Snowe, Collins, Brown, and Landrieu are sponsoring a free standing legislative proposal that will provide protection for ESOP valuators from the proposed DOL regulation. S. 1232 will modify the definition of “fiduciary” under ERISA to exclude valuators of ESOPs.  We believe that S. 1232 will protect ESOPs by preventing the unnecessary increase in administrative that would result if the proposed DOL regulation becomes finalized.

Please consider asking Senators Warner and Webb to co-Sponsor S. 1232.  We ask that all ESOPs in the Commonwealth of Virginia draft letters urging Senators Warner and Webb to co-Sponsor and support S. 1232, as well as employee ownership in general.  Click here for a suggested form letter, the text of which can be copied and printed under your company’s letterhead.  –Christopher L. McLean

A recent survey found that nearly 1 in 5 retirement plan participants has taken an early withdrawal from a retirement plan account within the past year in order to cover emergencies.  Click here for the story. 

Early retirement withdrawals, whether via hardship distributions, loans, in-service distributions for employees over age 59-1/2, or voluntary withdrawals from an IRA, are clearly not a wise move from a retirement savings perspective. Early withdrawal not only hamstrings the long-term growth of the retirement account, it also leads to premature tax liability, including in many cases an additional 10% penalty tax (for individuals below age 59-1/2).

Do employers owe a duty to employees to make it difficult to access the funds in their accounts, or perhaps to counsel employees to think twice about taking an early distribution?  From a legal perspective, the answer is a clear and resounding “no.” The law governing retirement plans permits early withdrawals in many circumstances, and offers no incentive for employers to design their plans to prohibit or restrict early distribution. Employers are free to offer these options (or not offer them), and if offered, employees must be allowed to use them on a nondiscriminatory basis. In fact, one of the only ways employers can get into trouble in this arena is by administering their early withdrawal provisions in a way that places additional burdens on employees for exercising their rights under the plan – for instance, by requiring employees to attend a financial counseling session prior to requesting a hardship distribution. An employee who is unwilling to attend a counseling session but otherwise satisfies the plan’s criteria for a hardship withdrawal could have a legitimate claim of prohibited discrimination against the plan administrator.

One thing employers can do is to opt out of the early withdrawal business altogether by amending plans to remove these options. Plans might be amended to permit loans but not hardship withdrawals, for instance, or to provide that certain categories of contributions (like profit sharing contributions) are not eligible for early withdrawal. The tax law provides neither an incentive nor a disincentive to include such provisions, so it is a matter of choice for each individual employer.

One thing to keep in mind, however: any early withdrawal provisions that are offered under the plan must be administered on a nondiscriminatory basis. An option available to one employee must be available under the same terms to all. –Shad C. Fagerland

The Centers for Medicare & Medicaid Services (“CMS”) enacted a rule, effective April 19, 2011, that increases federal funding for states for certain Medicaid activities.  Under the rule, states may receive 90% federal matching for the design and development of claims and information retrieval systems that improve the compatibility of state plans with federal Medicaid administration.  The rule also provides that states may receive 75%, instead of previously 50%, federal matching for operating expenditures related to running the new systems.  According to CMS, overall commentator feedback supports the increased federal funding match as an incentive for states to modernize Medicaid eligibility systems.  Some commentators believe that such increased federal funding at the outset of integration efforts will lower overall state and federal costs in the long term.

Qualification for federal matching depends on meeting performance standards, which include integration with Health Insurance Exchanges established through the Affordable Care Act, improving efficiency in handling claims, sharing technologies among the states, producing reports, and implementing flexible systems and open interfaces.

Availability for the 90% match will sunset December 31, 2015, while the 75% match may continue past 2015 if states meet certain criteria.  According to CMS, the 90% match is available only through 2015 to encourage states to modernize Medicaid eligibility systems as early as possible.  For more information, the CMS news release may be found here. 
–Aaron J. Ambrose

Employers covered by the Family and Medical Leave Act (“FMLA”) should establish procedures for obtaining proper medical certifications.  The FMLA permits employers to require employees to provide medical certification to support the need for leave due to a serious health condition of the employee or of certain members of the employee’s family.

The FMLA also allows employers to require periodic recertification of the need for such leave. The general rule is that an employer may require recertification of a serious health condition no more frequently than the duration of the prior certification or every 30 days, whichever period is longer. For example, if an employee begins leave for a serious health condition with a certification that states that leave is necessary for 45 days, the employer may not seek recertification until the 45 days have passed.  Regardless of the duration of the original certification, the employer may require recertification every six months in connection with an absence.

There are several exceptions that allow an employer to obtain recertification more frequently than every 30 days. More frequent recertification may be required if:

1. The employee requests an extension of the leave;
2. The circumstances described by the previous certification have changed significantly; and
3. The employer receives information that casts doubt upon the employee’s stated reason for the absence or the continuing validity of the certification.

In any such scenario, the employer must allow the employee 15 calendar days to produce the recertification.  The employer may ask for the same information when obtaining recertification that was permitted for the original certification.  Interestingly, as part of the request for recertification in connection with leave due to a serious health condition, the employer may provide the health care provider with a record of the employee’s absence pattern and ask the health care provider specifically to comment as to whether the serious health condition and the need for leave are consistent with such pattern. This is one option that employers may use to address concerns over abuse of leave.

Medical certifications can be an effective tool for managing FMLA leave and curbing abuse of such leave.  Therefore, employers are encouraged to review their FMLA policies, forms, and practices, to ensure compliance with regulations related to medical certifications.
–David J. Sullivan

Employers are required to establish written documents setting forth certain terms relating to their employee benefit plans. Failure to maintain the proper documents in updated form can lead to penalties or other enforcement actions by the IRS, Department of Labor, or other regulatory agencies.

While some of these documents are obvious, others have a tendency to slip through the cracks. We recommend that employers periodically review this list to make sure they can locate updated versions of the following:

Qualified Retirement Plans (including 401(k) plans)

•  Plan Document: Either a prototype plan (adoption agreement plus basic plan document) or an individually designed plan. The document will need to be amended approximately every five years in order to reflect changes made by recent legislation.
• Summary Plan Description: Summary of the terms of the plan, written in language that is easy to understand. Must be distributed to participants and must be updated to reflect material changes whenever the plan is amended.
• IRS Determination Letter / Opinion Letter: Every plan should be submitted to the IRS for approval, and an updated determination letter should be kept on file. (Note that prototype plans are covered by an IRS opinion letter that accompanies the plan document; employers who adopt a prototype plan do not need to request a separate IRS determination letter but should make sure to keep the plan’s opinion letter on file.) 
• Investment Policy (optional but recommended): This document outlines the procedures to be followed by plan fiduciaries when managing plan assets or when evaluating investment options made available under the plans.
• Fiduciary Delegations (optional but recommended): In order to protect officers and directors against liability under ERISA, we recommend that employers adopt board resolutions delegating fiduciary duties concerning oversight of the plans to one or more committees. Committee charters setting forth the specific responsibilities of each committee should also be established and approved by the Board.

 Health and Welfare Plans

•  Plan Document / Summary Plan Description: Most employers satisfy the plan document requirement by issuing a summary plan description outlining the terms of the company’s health and welfare benefit offerings.
• Cafeteria Plan: Employers who offer benefits on a pre-tax basis must maintain a written cafeteria plan document that satisfies the requirements of section 125 of the tax code. This document will also contain the terms applicable to flexible spending accounts or health savings accounts (if offered).
• HIPAA Manual: The Health Insurance Portability and Accountability Act (HIPAA) requires employers who sponsor health plans to maintain a written set of policies and procedures governing the handling of protected health information. This document should include procedures relating to HIPAA’s privacy regulations as well as the more recent set of HIPAA regulations governing security of electronic health records.

Nonqualified Deferred Compensation Plans (SERPs, deferred bonus plans, etc.)

• Plan Document: Every executive compensation arrangement that provides for deferral of compensation must be described in a written document that satisfies the requirements of section 409A of the tax code. The document may take the form of an employment agreement or a separate plan document. –Shad C. Fagerland

The United States Court of Appeals for the 4^th Circuit (which includes Virginia), recently held in Meineke Car Care Centers, Incorporated v. RLB Holdings, LLC, et al., Bus. Franchise Guide (CCH) ¶14,586, that a franchisor could recover future damages, including future royalties and future advertising contributions, after termination of franchise agreements, even though the franchise agreements at issue were completely silent on that issue.  The Court held that “in the absence of an express contractual provision barring future damages, the [franchise agreements] did not prohibit the recovery of those damages if otherwise permitted under [applicable] law.”

Accordingly, prospective franchisees should always attempt to bargain for an express contractual addendum to the franchise agreement barring future damages.  Conversely, franchisors who may desire to pursue claims for future damages from terminated franchisees may want to consider including an express provision allowing such future damages in their franchise agreements.

 For further information, contact Steve Story at sestory@kaufcan.com.  –Stephen E. Story