On Friday, January 5, 2018, the U.S. Department of Labor (“DOL”) posted a brief statement and updated its Fact Sheet on Internship Programs Under the Fair Labor Standards Act to clarify that going forward, it will use the “primary beneficiary” seven factor test for distinguishing bona fide interns from employees under the FLSA. The DOL’s approach is consistent with the test adopted by appellate courts such as the Second and Ninth Circuits.
The 2017 Tax Act (the “Act”) imposes a 21 percent excise tax on compensation in excess of $1 million and “excess” severance paid by covered tax exempt organizations to certain employees starting in 2018. As reflected in the Act’s legislative history, the general intent behind this excise tax is to put tax exempt organizations (which are generally exempt from income taxation) in roughly the same position tax-wise as publicly held and other for-profit companies which cannot deduct excess compensation and “golden parachute” payments paid to their covered employees. However, unlike the changes made in the Act to the excess compensation rules for publicly traded companies, there is no transition relief for existing tax exempt organization compensation arrangements. This means that the new excise tax will apply to all compensation paid by a covered organization to a covered employee in tax years beginning after 2017.
Set out below is an overview of the scope and application of the new excise tax provision.
On November 14, 2016, a federal judge in California denied summary judgment to Hanover Insurance Co. (Hanover), finding that class claims alleging a failure to reimburse reasonable business expenses were not excluded by a “wage-and-hour” exclusion contained in EPLI policies issued by Hanover. The lawsuit, brought by a former student of the Bellus Academy beauty school, alleged that Poway Academy (the owner of Bellus) and Beauty Boutique, Inc. (BBI) (operator of two other schools under the “Bellus” name), failed to compensate students for working on paying clients at an onsite salon and also failed to reimburse them for out-of-pocket costs to purchase necessary supplies. The lawsuit alleged a variety of wage-related claims. The lawsuit also alleged that the schools failed to reimburse necessary business expenses in violation of Section 2802 of the California Labor Code.