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 Looking Inside the American Jobs Act

While the $447 billion proposed act by the Obama administration offers tax credits and payroll-tax cuts, it also puts forth new protections for unemployed individuals — giving them the right to sue companies for failing to hire them. That puts employers in a vulnerable position.

By Tom Starner    29 September, 2011

The ultimate end game is creating jobs, but the Obama administration’s proposed $447 billion American Jobs Act (AJA), if passed in its current form, also would create some new challenges — and opportunities — for human resource professionals across the country.

Some changes, the potentially negative ones, revolve around new discrimination considerations in hiring the unemployed.

On the upside, changes within the AJA would give employers, especially smaller ones, some very strong payroll tax incentives in the form of credits that could lead to more hiring, especially of the unemployed and veterans.

There also are some provisions in the AJA designed to help small businesses keep more of their payroll taxes, which also could provide incentive for them to boost hiring.

On the hiring and discrimination front, Daniel Saperstein, an attorney who specializes in employment law in the Newark, N.J., office of Proskauer, says the 155-page AJA contains a section called the Fair Employment Opportunity Act of 2011, which would prohibit discrimination based on unemployment status.

Saperstein say the proposed act contains provisions similar to proposed stand-alone laws in the U.S. Senate and the U.S. House of Representatives

According to Saperstein, the AJA would provide expansive rights and broad protections to the unemployed, including whistleblower/retaliation provisions and generous remedies for those who can make a case for discrimination under the AJA.

Much like discrimination as defined under Title VII for race, gender, etc., the unemployed would become a “protected class.”

“Most aspects of the bills are similar, but there are some distinctions in the AJA,” Saperstein says. “Compared to the stand-alone proposals from the Senate and House, the Obama proposal is slightly more favorable to HR in terms of hiring.”

For example, there is an AJA provision that expressly allows employers to consider an applicant’s employment history during the hiring process. That option was “unclear” in the other proposals, Saperstein says.

“Employers will still have to be careful, because such questions may create an inference of discriminatory behavior, but under the AJA, they can ask certain questions about unemployment gaps,” he says.

On the other hand, he says, the effect of all these proposals on the job-interviewing process itself could “redefine” the way in which interviews are constructed and delivered.

“It is not clear what can or can’t be asked about gaps in work history, depending on the proposal,” Saperstein says. “It’s tough to predict which one, if any, will become law. This can be seen as a winning political issue in a bad economy, but it also could have some unintended consequences.”

For example, individuals would be given the right to sue under Title VII if an organization posted a job stating that the unemployed need not apply. (A recent law in New Jersey makes it illegal for employers to do just that — the first such legislation in the United States. In that state, violating employers would probably only face fines and/or other penalties, because an unemployed person would have no provable specific personal harm, Saperstein says.)

“This is a troubling aspect of the AJA, allowing a person to sue,” he says. “Would that make it enough for a person to say, ‘I saw your ad’ and filed a lawsuit? The New Jersey law does not allow a private right of action, and that makes more sense.”

In the AJA, an unemployed individual would be one who does not have a job, is available for work and is searching for work, he says. The timeframe covered would be when the individual submitted an application for employment and when the organization acted on that application. The law would be enforced by the Equal Employment Opportunity Commission, Saperstein says.

HR leaders must also be aware that the AJA and other similar bills apply to both employers and employment agencies, so organizations must work in concert with recruiting agencies to ensure they do not violate the law, should it be enacted.

And if it does become enacted, it could prove a challenge for HR, because it may hamper an organization’s ability to adequately screen applicants and may leave the company in a vulnerable position.

“Our concern is, if employers are not able to dig into a job candidate’s work history, if something were to happen, the employer could be held liable,” he says.

Saperstein suggests HR leaders review hiring practices now, and pay careful attention to the broad rights and remedies afforded to applicants and employees under the proposed act.

“Do your due diligence and make sure any unemployment gaps are legitimate,” he says, adding that, so far, there has been strong resistance to the AJA and nothing may happen. But it is a trend with momentum — as evidenced by four proposals at the federal, three at state level and the NJ law.

“The main problem is the AJA as it stands is too broad, and may not be not taking in some of the realities of due diligence in hiring,” Saperstein says. “Many Americans are unemployed through no fault of theirs, but as it stands, the language regarding discrimination and the unemployed may be too broad, and could cause some unwanted results.”

Moving to the opportunity side of the AJA, Kevin Mason, vice president at MassPay, a Beverly, Mass.-based payroll-services provider with small businesses as clients, says the most important aspect of the proposed law is the impact it could have on hiring, giving smaller businesses a better chance to hire earlier in the year than in the recent past.

Proposed changes to the Social Security payroll tax include employee-side and employer-side payroll tax cuts, and cuts specific to companies that are able to grow their payroll.

If the AJA becomes law, for example, the payroll tax paid by employers with a cap of $5 million in wages would be cut from 6.2 percent to 3.1 percent — a serious tax reduction for those organizations.

“Typically, small and medium businesses looking to grow in 2012 would not be able to hire until the second or third quarter, but with the tax cuts alone, they may be able to do that sooner,” Mason says. “Also, many smaller employers have had to reduce hours, and these types of tax cuts will help.”

The AJA also includes tax credits for businesses that hire long-term unemployed individuals and veterans/wounded warriors.

When an employer hires someone who has been out of work for six months or longer — they can receive up to a $4,000 payroll tax credit. Also, employers that qualify would get a 100-percent payroll tax credit for new wages. In other words, if they had $1 million in wages this year and $1.2 million next year, they would receive a 100-percent tax credit on the $200,000 difference.

The “Returning Heroes” provision provides tax credits from $5,600 to $9,600 to encourage the hiring of unemployed veterans.

“If these parts of the AJA become law, it’s going to become interesting for HR professionals because there will be some serious chances for additional hiring,” Mason says.

“And for HR, it could create some relief for the workforce, some stress removal, because it would give employers some much-needed options, whether it means an increase in hiring or boosting work hours or wages.”

September 28, 2011

Copyright 2011© LRP Publications

 

 

 


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