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DTCI: The aftermath of the Supreme Court’s ruling on DOMA

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kemp By Laurie Kemp

In June 2013, the United States Supreme Court ruled that the federal Defense of Marriage Act, which defines marriage as a union between one man and one woman, is unconstitutional. In essence, the court held that the Act denied same-sex couples the “equal liberty” guaranteed by the Fifth Amendment. This decision has far broader impact than just the scope of the estate-tax issues raised in the case, and employers and benefit providers should be aware of the impact and aftermath of this ruling.

History

The 1996 Defense of Marriage Act, or DOMA, was signed into law by President Bill Clinton and bars federal recognition of same-sex marriages for purposes such as Social Security survivors’ benefits, insurance benefits, immigration and tax filing. Section 3 of the law defined marriage as “a legal union between one man and one woman as husband and wife” and a spouse as “a person of the opposite sex who is a husband or a wife.” That provision had been struck down by eight lower courts before the 2013 Supreme Court’s 5-4 ruling in United States v. Windsor settled the matter. The Windsor decision means that legally married same-sex couples are now entitled to the same federal benefits as married opposite-sex couples.

The facts of the case

The state of New York recognized the marriage of New York residents Edith Windsor and Thea Spyer, who were married in Canada in 2007. When Spyer died in 2009, she left her entire estate to Windsor. Windsor sought to claim the federal estate tax exemption for surviving spouses but was barred from doing so by DOMA. As a result, Windsor paid $363,053 in estate taxes and sought a refund, which the Internal Revenue Service denied. Windsor filed suit, contending that DOMA violated the principles of equal protection set forth in the Fifth Amendment to the U.S. Constitution.

The Supreme Court’s decision

By a slim 5-4 majority, the Supreme Court struck down DOMA as unconstitutional. Writing on behalf of Justices Stephen Breyer, Ruth Bader Ginsburg, Elena Kagan and Sonia Sotomayor, Justice Anthony Kennedy explained the basis for striking down the law. “DOMA seeks to injure the very class New York seeks to protect. By doing so it violates basic due process and equal protection principles applicable to the Federal Government.” He went on to state that “by creating two contradictory marriage regimes within the same state, DOMA forces same-sex couples to live as married for the purpose of state law but unmarried for the purpose of federal law, thus diminishing the stability and predictability of basic personal relations the State has found it proper to acknowledge and protect.”

The court acknowledged the extensive and daunting implications of DOMA on married same-sex couples, including preventing them from obtaining government health care benefits, benefiting from provisions of the Bankruptcy Code, and filing joint federal tax returns. The court also emphasized the social stigma the law places on couples and their families.

DOMA undermines both the public and private significance of state-sanctioned same-sex marriages; for it tells those couples, and all the world, that their otherwise valid marriages are unworthy of federal recognition. This places same-sex couples in an unstable position of being in a second-tier marriage. The differentiation demeans the couple, whose moral and sexual choices the Constitution protects, and whose relationship the State has sought to dignify. And it humiliates tens of thousands of children now being raised by same-sex couples. The law in question makes it even more difficult for the children to understand the integrity and closeness of their own family and its concord with other families in their community and in their daily lives.

The aftermath of the Windsor ruling

The Windsor decision did not overturn or prohibit all laws excluding same-sex marriages and is clearly limited to federal law. The scope of its reach, however, is not insignificant. In fact, its holding has far-reaching implications for employers across the country who are governed by a number of federal employment and benefit laws.

FMLA

The Family and Medical Leave Act of 1993 requires an employer to grant unpaid leave to workers who need to care for the birth of a newborn child, the adoption or foster placement of a child, or to deal with their own serious medical condition or the serious health condition of an immediate family member. The law also allows for leave for exigent circumstances associated with military deployment or to care for a service member injured in the line of duty for family members of U.S. service members. For purposes of FMLA, immediate family members are parents, children and spouses. Until Windsor, FMLA defined “spouse” as “a husband or wife as defined or recognized under State law for purposes of marriage in the State where the employee resides, including common law marriage in States where it is recognized.” Although this definition would seem to include same-sex spouses in states that recognize same-sex marriage, the United States Department of Labor, which enforces FMLA, had previously held to the contrary. In a 1998 Opinion Letter, the DOL announced that DOMA, which was enacted subsequent to FMLA, established a federal definition of marriage. Because FMLA is a federal statute, the DOL opined that “only the Federal definition of marriage and spouse as established under DOMA may be recognized for FMLA leave purposes.” With this opinion, the DOL affirmed that although state or local governments could provide greater family or medical leave rights than those provided under FMLA, the statute did not grant any such rights to same-sex married couples.

With the Windsor ruling, same-sex spouses are now considered spouses under federal law if they are considered spouses under state law. Therefore, all federal laws and regulations that include spouses encompass the broader same-sex definition in those states where same-sex marriage is legal. Now that section 3 of DOMA has been overturned, employers covered by FMLA must grant to qualifying employees time off to care for their seriously ill or injured same-sex spouses. In fact, the DOL issued guidance in August 2013 and updated their fact sheet to specifically include same-sex spouses in the definition of “spouse.” The definition interprets “spouse” based upon the state law in which the employee resides. This residency requirement stems from the DOL’s FMLA regulations (issued before Windsor), which provide that marriage for FMLA purposes is determined by the state of residence. Thus, at this time, unless the DOL issues further guidance on this issue, FMLA rights have to be provided only to those same-sex married couples residing in states where their marriages are recognized.

ERISA

Beyond FMLA, President Obama also directed the attorney general to work with other members of the cabinet to review all relevant federal statutes to ensure the Supreme Court’s decision, including its implications for federal benefits and obligations, is implemented swiftly. Following consultation with the Department of Justice, the Department of the Treasury and other federal executive agencies, the DOL issued a technical release in September 2013 to provide guidance to employee benefit plans, plan sponsors, plan fiduciaries, and plan participants and beneficiaries on the meaning of “spouse” and “marriage” as these terms appear in the provisions of the Employee Retirement Income Security Act of 1974, and the Internal Revenue Code that the department interprets. In short, the DOL has taken the position that – at least with respect to employee benefit plans – the terms “spouse” and “marriage” in Title I of ERISA and its implementing regulations “should be read to include same-sex couples legally married in any state or foreign jurisdiction that recognizes such marriages, regardless of where they currently live.”

IRS

The Internal Revenue Service also issued guidance on the matter in August 2013 confirming its position that a same-sex couple is considered married (for federal tax purposes) so long as the couple was married in any state (or U.S. territory or foreign country) that recognizes same-sex marriage. Under the Internal Revenue Code, an employee’s gross income does not include employer-provided insurance coverage, including coverage for a spouse. Accordingly, if an employer offers its employees the benefit of putting their spouses on their health plan, those spousal benefits are not taxed. Before Windsor, this meant that spousal benefits for employees in opposite-sex marriages were not taxed, while spousal benefits for employees in same-sex marriages were taxed. Employers were required to impute the value of an employee’s same-sex spouse’s coverage into the employee’s income.

Now that section 3 of DOMA has been overturned, the IRS has reverted to its pre-DOMA interpretation of the IRC to determine how to interpret the term “spouse”; meaning that the IRS will defer to each state’s law regarding the definition of the term “spouse.” Thus, if an employee’s same-sex partner is considered a spouse under state law, the partner’s benefits are not to be considered part of the employee’s gross income and the IRS will not tax that partner’s health benefits. Consequently, the employee’s net income will decrease, resulting in a decrease in the amount of payroll taxes the employer and employee will be required to pay.

What’s next?

As of February, 17 states (California, Connecticut, Delaware, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Rhode Island, Vermont, Washington) and the District of Columbia have legalized same-sex marriage. (The Illinois law will not become effective until June 1.) Oregon recognizes same-sex marriages performed in other states. In February, a Western District of Kentucky U.S. District judge ordered Kentucky to recognize same-sex marriages consecrated elsewhere finding that Kentucky laws denying recognition violate the Equal Protection Clause of the U.S. Constitution. As the Indiana legislature considers presenting a constitutional amendment banning same-sex marriage to the voters, it must also consider the impact the Windsor ruling (and recent ruling in Kentucky) will have on the scope of such an amendment.

Given these court rulings and the federal agency guidance that have been issued, now is the time for all employers covered by FMLA, or offering retirement and health and welfare benefits, to review and update their plan documents, payroll systems, and administrative procedures to comply with the Supreme Court’s ruling. Even if a company is located in a state that does not recognize same-sex marriages, benefits may still be extended to employees who either reside in states where same-sex marriage is recognized or who were married in such a state. The application of benefits is not clear-cut and employer obligations will vary from state to state and based upon the facts and circumstances of each employer and employee. Without question, employers with operations in multiple states will have to deal with a mixture of state laws governing what constitutes a spouse and must consider both the corporation’s location and the residency of its employees in determining the applicability of the federal laws to its employees.

Unfortunately, Windsor does not address whether pre-DOMA law will apply retroactively for tax or benefit plan purposes. Some unresolved issues, for example, include questions concerning claims for income tax refunds based upon the recognition of spousal status, as well as Federal Insurance Contributions Act tax refund claims by employees and employers and the rights to spousal benefits under pension and health plans. Employers must be alert to these issues and should monitor any further guidance from the IRS and DOL that will help direct how employers should address these spousal benefits and any retroactive application of Windsor.

We have not heard the last on this issue.•

Laurie Kemp is a partner in the New Albany office of Kightlinger & Gray LLP and chairs the DTCI Employment Law Section. Ms. Kemp practices throughout Kentucky and Indiana assisting clients with myriad employment-related issues as well as handling a variety of employment litigation cases stemming from discrimination, wrongful termination, harassment and retaliation claims. The opinions expressed in this article are those of the author.
 

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  1. Yes diversity is so very important. With justice Rucker off ... the court is too white. Still too male. No Hispanic justice. No LGBT justice. And there are other checkboxes missing as well. This will not do. I say hold the seat until a physically handicapped Black Lesbian of Hispanic heritage and eastern religious creed with bipolar issues can be located. Perhaps an international search, with a preference for third world candidates, is indicated. A non English speaker would surely increase our diversity quotient!!!

  2. First, I want to thank Justice Rucker for his many years of public service, not just at the appellate court level for over 25 years, but also when he served the people of Lake County as a Deputy Prosecutor, City Attorney for Gary, IN, and in private practice in a smaller, highly diverse community with a history of serious economic challenges, ethnic tensions, and recently publicized but apparently long-standing environmental health risks to some of its poorest residents. Congratulations for having the dedication & courage to practice law in areas many in our state might have considered too dangerous or too poor at different points in time. It was also courageous to step into a prominent and highly visible position of public service & respect in the early 1990's, remaining in a position that left you open to state-wide public scrutiny (without any glitches) for over 25 years. Yes, Hoosiers of all backgrounds can take pride in your many years of public service. But people of color who watched your ascent to the highest levels of state government no doubt felt even more as you transcended some real & perhaps some perceived social, economic, academic and professional barriers. You were living proof that, with hard work, dedication & a spirit of public service, a person who shared their same skin tone or came from the same county they grew up in could achieve great success. At the same time, perhaps unknowingly, you helped fellow members of the judiciary, court staff, litigants and the public better understand that differences that are only skin-deep neither define nor limit a person's character, abilities or prospects in life. You also helped others appreciate that people of different races & backgrounds can live and work together peacefully & productively for the greater good of all. Those are truths that didn't have to be written down in court opinions. Anyone paying attention could see that truth lived out every day you devoted to public service. I believe you have been a "trailblazer" in Indiana's legal community and its judiciary. I also embrace your belief that society's needs can be better served when people in positions of governmental power reflect the many complexions of the population that they serve. Whether through greater understanding across the existing racial spectrum or through the removal of some real and some perceived color-based, hope-crushing barriers to life opportunities & success, movement toward a more reflective representation of the population being governed will lead to greater and uninterrupted respect for laws designed to protect all peoples' rights to life, liberty & the pursuit of happiness. Thanks again for a job well-done & for the inevitable positive impact your service has had - and will continue to have - on countless Hoosiers of all backgrounds & colors.

  3. Diversity is important, but with some limitations. For instance, diversity of experience is a great thing that can be very helpful in certain jobs or roles. Diversity of skin color is never important, ever, under any circumstance. To think that skin color changes one single thing about a person is patently racist and offensive. Likewise, diversity of values is useless. Some values are better than others. In the case of a supreme court justice, I actually think diversity is unimportant. The justices are not to impose their own beliefs on rulings, but need to apply the law to the facts in an objective manner.

  4. Have been seeing this wonderful physician for a few years and was one of his patients who told him about what we were being told at CVS. Multiple ones. This was a witch hunt and they shold be ashamed of how patients were treated. Most of all, CVS should be ashamed for what they put this physician through. So thankful he fought back. His office is no "pill mill'. He does drug testing multiple times a year and sees patients a minimum of four times a year.

  5. Brian W, I fear I have not been sufficiently entertaining to bring you back. Here is a real laugh track that just might do it. When one is grabbed by the scruff of his worldview and made to choose between his Confession and his profession ... it is a not a hard choice, given the Confession affects eternity. But then comes the hardship in this world. Imagine how often I hear taunts like yours ... "what, you could not even pass character and fitness after they let you sit and pass their bar exam ... dude, there must really be something wrong with you!" Even one of the Bishop's foremost courtiers said that, when explaining why the RCC refused to stand with me. You want entertaining? How about watching your personal economy crash while you have a wife and five kids to clothe and feed. And you can't because you cannot work, because those demanding you cast off your Confession to be allowed into "their" profession have all the control. And you know that they are wrong, dead wrong, and that even the professional code itself allows your Faithful stand, to wit: "A lawyer may refuse to comply with an obligation imposed by law upon a good faith belief that no valid obligation exists. The provisions of Rule 1.2(d) concerning a good faith challenge to the validity, scope, meaning or application of the law apply to challenges of legal regulation of the practice of law." YET YOU ARE A NONPERSON before the BLE, and will not be heard on your rights or their duties to the law -- you are under tyranny, not law. And so they win in this world, you lose, and you lose even your belief in the rule of law, and demoralization joins poverty, and very troubling thoughts impeaching self worth rush in to fill the void where your career once lived. Thoughts you did not think possible. You find yourself a failure ... in your profession, in your support of your family, in the mirror. And there is little to keep hope alive, because tyranny rules so firmly and none, not the church, not the NGO's, none truly give a damn. Not even a new court, who pay such lip service to justice and ancient role models. You want entertainment? Well if you are on the side of the courtiers running the system that has crushed me, as I suspect you are, then Orwell must be a real riot: "There will be no curiosity, no enjoyment of the process of life. All competing pleasures will be destroyed. But always — do not forget this, Winston — always there will be the intoxication of power, constantly increasing and constantly growing subtler. Always, at every moment, there will be the thrill of victory, the sensation of trampling on an enemy who is helpless. If you want a picture of the future, imagine a boot stamping on a human face — forever." I never thought they would win, I always thought that at the end of the day the rule of law would prevail. Yes, the rule of man's law. Instead power prevailed, so many rules broken by the system to break me. It took years, but, finally, the end that Dr Bowman predicted is upon me, the end that she advised the BLE to take to break me. Ironically, that is the one thing in her far left of center report that the BLE (after stamping, in red ink, on Jan 22) is uninterested in, as that the BLE and ADA office that used the federal statute as a sword now refuses to even dialogue on her dire prediction as to my fate. "C'est la vie" Entertaining enough for you, status quo defender?

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