Alert: Notice to Employees Due October 1, 2013 (Patient Protection Affordable Care Act).

We wanted to share with you some important information for small business owners (and it is time-sensitive). Please alert your colleagues and fellow business owners/entrepreneurs:

We’ve been alerting small business owners (who assumed that the “ObamaCare” regulations did not apply to them because they employ fewer than 50 employees, or otherwise, that they were off the hook for compliance until 2015) that they may be facing an impending penalty and expensive wake-up call next month.

Beginning October 1, 2013, any business with at least one (1) employee and $500,000 in annual revenue (the definition captures the majority of small businesses) must notify all employees by letter about the Patient Protection Affordable Care Act’s (the “ACA“) health-care exchanges, or face up to a $100-per-day fine (under the general penalty provisions). Because the ACA amended the provisions of the Fair Labor Standards Act to add the notification requirements, the requirement applies to any business regulated under the Fair Labor Standards Act (the FLSA — those subject to the standard above: at least one employee and $500,000 in revenue). Going forward, letters are to be distributed to any new hires within 14 days of their starting date, according to the Department of Labor.

The Department of Labor (www.dol.gov) has published Technical Release 2013-02 outlining the Notice Requirement and providing model forms of Notice to Employees asserting that:  “FLSA section 18B requirement to provide a notice to employees of coverage options applies to employers to which the FLSA applies. In general, the FLSA applies to employers that employ one or more employees who are engaged in, or produce goods for, interstate commerce. For most firms, a test of not less than $500,000 in annual dollar volume of business applies. The FLSA also specifically covers the following entities: hospitals; institutions primarily engaged in the care of the sick, the aged, mentally ill, or disabled who reside on the premises; schools for children who are mentally or physically disabled or gifted; preschools, elementary and secondary schools, and institutions of higher education; and federal, state and local government agencies.” The DOL Technical Release 2013-02 does not state that the Notice is optional or that no penalty will apply for failing to comply with this requirement (and only did so informally last week — stay tuned).

Earlier this summer, the employer mandate, which states that every business with at least 50 or more full-time employees must offer workers acceptable coverage or face a $2,000 penalty per-worker, per-year, was pushed back until 2015. But the October 1st employee-notification deadline stands. The general compliance penalty under the ACA (a fine of $100 per-day) has been unfortunately overlooked by many small businesses. Because this notice requirement is now a part of the FLSA there are also penalties there. So the general consensus among practitioners is that some penalty applies and probably the general provision.

This controversy has gained momentum over the past week, because it is unclear how the government will implement the penalty (it appears to be self-reporting). Naturally, the White House declined to comment on how the fine would be implemented, but deferred to the U.S. Small Business Administration, which says education on this FLSA requirement has been part of “any and all outreach that SBA does with small business owners.” The agency says it has participated in more than 750 ACA-related events with more than 30,000 small business owners and community stakeholders since February 2013.

On September 12, 2013, Meredith K. Olafson who is Senior Policy Advisor for the U.S. Small Business Administration (she oversees the agency’s education and outreach efforts around health care and the Affordable Care Act) claimed in her blog post that there is no fine imposed for failing to provide the notice “Myth vs. Fact: Myth #3: Business Owners Will Be Fined If They Don’t Notify Their Employees About the New Health Insurance Marketplace (Created: September 12, 2013, 3:41 pm and Updated: September 12, 2013, 3:41 pm). Ms. Olafson states in her blog post that:  “As part of our ongoing blog series, “Myth vs. Fact: The Affordable Care Act and Small Business,” this week we’re debunking another common myth: Business owners will be fined if they don’t provide notification to their employees about the new Health Insurance Marketplace.  Fact: If your company is covered by the Fair Labor Standards Act, you must provide a written notice to your employees about the Health Insurance Marketplace by October 1, 2013.  However, there is no fine or penalty under the law for failing to provide the notice.”

Ms. Olafson does not, however, reference any of the general penalty provisions or cite any authority or precedent to explain why the general penalties do not apply for failing to comply (other than a naked and unsupported assertion that there is no penalty). It appears that Ms. Olafson was relying upon in an informal FAQ response posted on the Department of Labor website (under the topic Affordable Care Act) as follows:

FAQ on Notice of Coverage Options

Q: Can an employer be fined for failing to provide employees with notice about the Affordable Care Act’s new Health Insurance Marketplace?

A: No. If your company is covered by the Fair Labor Standards Act, it should provide a written notice to its employees about the Health Insurance Marketplace by October 1, 2013, but there is no fine or penalty under the law for failing to provide the notice.

Nevertheless, the general consensus among experienced practitioners, is that compliance is a better approach. When the requirements of the law include the word “shall” it is generally interpreted as mandatory — not permissive or optional. Perhaps the government will choose to waive the penalty or choose not to enforce the penalty provisions on unsuspecting small businesses, but there is risk involved in assuming that position.

Furthermore, due to the breadth and scope of the ACA, other legal exposure may arise from failure to comply. For example, some practitioners have suggested that small businesses who offer an ERISA-covered plan providing health benefits to employees, may be subjecting themselves to ERISA liabilities for failing to notify employees if an employee asserts damage. This exposure may arise in the form of litigation (as opposed to a fine that the government seems to suggest that it will not enforce).

Please contact us if you would like more information regarding the DOL Technical Release 2013-02 (with links to the Model Notice Forms). Please note that the form suggests that page 3 is optional.